Contract for deed calculator
Buying on a land contract? See the all-in monthly cost, when you get the deed, the equity you build, and what you could lose if you fall behind.
What this answers: On a contract for deed, what will the buyer pay each month, what could they lose, and what does the seller earn?
How this deal works: The buyer moves in and pays the seller in monthly installments, but the seller keeps the deed. The buyer gets the deed only after paying the full price, or a lump sum (a balloon) at the end.
Start from an example, then change any number:
You'd pay $1,482 a month in all: $1,057 to the seller plus $425.00 for taxes, insurance and repairs. You get the deed only after paying the $136,901 balloon in year 5. Until then the seller owns it, and falling behind could cost you up to $79,397 you've paid in.
You'd get $16,000 up front, then $1,057 a month, earning $56,298 in interest. In year 5 the buyer owes you $136,901. You keep the deed until you're paid in full, but you're still the owner on record, so keep your own mortgage and taxes paid.
Equity by year
| Year | Paid in | Still owed | Value | Equity |
|---|---|---|---|---|
| 1 | $28,679 | $142,797 | $164,800 | $22,003 |
| 2 | $41,359 | $141,494 | $169,744 | $28,250 |
| 3 | $54,038 | $140,083 | $174,836 | $34,753 |
| 4 | $66,718 | $138,555 | $180,081 | $41,526 |
| 5 | $79,397 | $136,901 | $185,484 | $48,583 |
Equity is the value minus what you still owe. On a contract for deed it's only yours once you get the deed. Paid in counts the down payment and installments, not taxes, insurance or repairs.
How it differs from a mortgage and rent-to-own
- Who holds the deed while you pay?
- Mortgage: YouContract for deed: The sellerRent-to-own: The seller
- Do your payments buy the home?
- Mortgage: YesContract for deed: YesRent-to-own: Only any rent credits
- Who pays taxes and repairs?
- Mortgage: YouContract for deed: Usually youRent-to-own: Usually the seller
- What if you stop paying?
- Mortgage: ForeclosureContract for deed: Forfeiture or foreclosure, by stateRent-to-own: You lose the option fee and move out
What could go wrong
You could lose what you've paid in. In some states, if the buyer misses payments the seller can cancel the contract and keep everything paid so far (up to $79,397 here), with no foreclosure. This is called forfeiture. Other states treat it more like a mortgage and protect the buyer's equity.
The seller still owns the property. If the seller doesn't pay their own mortgage or taxes, gets a lien or a court judgment, goes bankrupt or dies, the buyer's claim can get tangled up, even when every payment was on time.
The balloon. The buyer must pay $136,901 in year 5 to get the deed, usually with a bank loan. If they can't qualify by then, they could lose the home and what they've paid.
You pay like an owner without the deed. The buyer usually pays the taxes, insurance and repairs, but can't borrow against the home or sell it freely until the deed is theirs.
Before you sign
- Record the contract (or a short memorandum of it) with the county, so everyone can see the buyer's interest.
- Get a title search now and title insurance, and find out whether the seller still has a mortgage on the property.
- Read what happens after a missed payment: the grace period, the notice, and whether equity is returned.
- Ask the seller to sign the deed now and leave it with an escrow company until the last payment.
- Get a home inspection and an appraisal before you sign.
- Keep proof of every payment, or pay through a loan servicing company.
This is not legal or tax advice. The rules for these deals vary by state. Have a real estate attorney review the contract before you sign.
How this is calculated
- 1Down payment = price × down payment %. The amount financed = price − down payment.
- 2Payment to the seller = amount financed × r ÷ (1 − (1 + r)−n), where r is the yearly rate ÷ 12 and n is the years it's paid off over × 12.
- 3All-in monthly cost = payment to the seller + property tax ÷ 12 + insurance ÷ 12 + repairs.
- 4Balloon = what's still owed after the last payment before the balloon date. The buyer gets the deed once it's paid.
- 5Paid in = down payment + installments so far. Equity = value − what's still owed, where value grows by the yearly value growth.
- 6At risk before the deed = down payment + every installment before the deed: what a forfeiture could take.
Assumes a fixed rate, payments on time, and interest figured monthly. Taxes, insurance and repairs stay level. Closing costs and late fees aren't included. This is not legal or tax advice: contract-for-deed rules vary a lot by state, so have a real estate attorney review the contract.
Words to know
- Contract for deed
- Also called a land contract, installment sale contract or agreement for deed. The buyer pays the seller over time and gets the deed at the end.
- Deed
- The document that transfers ownership. Whoever's name is on the recorded deed owns the property.
- Legal title
- Ownership on record. Under a contract for deed the seller keeps it until the buyer pays in full.
- Equitable title
- The buyer's right to use the property and to get the deed once the contract is paid.
- Forfeiture
- Ending the contract after a default and keeping what the buyer has paid. Some states allow it; others require a foreclosure.
- Balloon payment
- A lump sum of everything still owed, due on a set date.
- Equity
- What the property is worth minus what's still owed on it.
- Recording
- Filing a document with the county so the public, and later buyers or lenders, can see it.
- Escrow
- A neutral company that holds money or documents, like a signed deed, until the conditions are met.
Frequently asked questions
- What is a contract for deed?
- A way to buy a home where the seller is paid in installments and keeps the deed until the buyer pays the full price. The buyer usually moves in right away and pays the taxes, insurance and repairs.
- How is a contract for deed different from a mortgage?
- With a mortgage you get the deed at closing and the lender holds a lien. With a contract for deed the seller keeps the deed until you finish paying, and in some states a default can end the contract without a foreclosure.
- How is it different from rent-to-own?
- On rent-to-own you rent first and have the option to buy later; only any rent credits count toward the price. On a contract for deed you've already agreed to buy, and every payment pays down the price.
- What happens if I miss payments on a contract for deed?
- It depends on your contract and your state. Some states allow forfeiture, where the seller cancels the contract and keeps what you've paid. Others require a foreclosure or protect buyers who've paid a lot. Ask an attorney before you sign.
- Should a contract for deed be recorded?
- Generally yes. Recording the contract, or a short memorandum of it, puts the public on notice of the buyer's interest. Some states require it.
- Can I refinance a contract for deed later?
- Often, yes. Many buyers use a contract for deed to build credit and then get a bank mortgage to pay off the seller, especially when there's a balloon.