Fannie Mae Selling Guide: What is Contract for Deed and How to Navigate It
When it comes to buying or selling a home, there are many options available. One option that may be less familiar to some is the contract for deed (CFD). A CFD is a way to buy or sell a property where the seller finances the purchase and the buyer makes payments directly to them, rather than obtaining a traditional mortgage loan. If you`re a seller considering a CFD, it`s important to know the guidelines set forth by Fannie Mae.
Fannie Mae is a government-sponsored entity that purchases mortgages from lenders, providing them with liquidity so they can make more loans. When it comes to CFDs, Fannie Mae has specific guidelines that sellers must follow to ensure the agreement is valid and binding.
One of the key elements of a CFD that must be addressed in accordance with Fannie Mae guidelines is the “due-on-sale” clause. This clause states that if the property is sold, the full amount of the outstanding mortgage balance is due immediately. However, Fannie Mae allows for an exception to this clause in the case of a CFD.
To qualify for the exception, the CFD must meet certain criteria. For example, the buyer must have an ownership interest in the property and be responsible for paying property taxes and insurance. The seller must also receive a down payment of at least 10% of the purchase price, and the agreement must have a term of at least three years.
Another important consideration for sellers is the interest rate. Fannie Mae requires that the interest rate on a CFD be at least the current market interest rate for a conventional loan. This helps to ensure that the buyer is not being charged an excessive interest rate, which could potentially result in default.
Sellers must also be aware of any state-specific regulations related to CFDs. Some states may have additional requirements or restrictions, such as requiring the agreement to be recorded with the county recorder`s office or imposing limits on the amount of interest that can be charged.
Navigating the guidelines set forth by Fannie Mae and any state-specific regulations can be complex, but it`s important for sellers to fully understand their obligations and responsibilities when entering into a CFD. Working with a real estate attorney or other qualified professional can help ensure that the agreement is legally binding and in compliance with all applicable regulations.
In conclusion, a CFD can be a viable option for buying or selling a property, but it`s important to understand and follow the guidelines set forth by Fannie Mae and any state-specific regulations. By doing so, sellers can help ensure a successful and legally binding transaction.