While traditional mortgages and third-party lenders are the most common payment options for property purchases, these aren't the only options available. Owner-financing options allow certain buyers, those who don't have perfect credit or who may not meet other qualifications of traditional financing, to get home financing. A Bond for Deed arrangement, also known as a Contract for Deed, is actually a form of owner financing, but with one important exception: the seller retains the Deed and legal title to the house while transferring the physical possession of the house to the buyer. During the installment period (the period where the buyer makes payments to the seller) the seller retains full legal rights though the buyer can make improvements on the property and live there. If the buyer defaults, then the entire property goes back to the seller. In some cases, such as Louisiana, the buyer is out for all of his improvements.

Get started Create Your Home Purchase Worksheet Answer a few questions. We'll take care of the rest.

How Are a Bond for Deed and Owner Financing Similar or Different?

Traditional owner financing is quite similar to a Bond for Deed, but oftentimes with a Bond for Deed, the deed and title are placed in third-party escrow to protect the parties' interests. Payments are still made to the seller directly, and if the buyer defaults, the seller can institute legal proceedings to get the property back. In most states, the buyer can then countersue and claim reimbursement for all home restorations and improvements, provided they enhanced the value of the house.

What Are the Pros and Cons of Using a Bond for Deed?

A Bond for Deed typically allows the buyer and seller to work out an arrangement much faster. It does not require the same legal filings in most states, and it can be executed within a matter of hours or days, depending on how quickly the two can agree. But the shortened nature of the agreement opens the buyer up to more risk as default results in repossession without reimbursement. Traditional owner-financing options, on the other hand, can take longer, but the contract can also be developed to provide better protection to the buyer rather than just the seller.

Get started Create Your Home Purchase Worksheet Answer a few questions. We'll take care of the rest.

Get started Create Your Home Purchase Worksheet Answer a few questions. We'll take care of the rest.