We have developed a list of elements for this type of contract to help it become more widely used and standardized. Some of these elements include a legal review by both parties, a title report on the property, home inspections, home warranties, 30-year amortization terms, and contract recording, to protect the buyer and the seller.
Once both buyer and seller have agreed on a price and interest rate and term, a Rocket Lawyer or other suitable contract can be printed and after the recommended legal review by the buyer be signed. The QCD™ can then be recorded, and is effective immediately for the buyer’s ownership rights.
In a QCD™ there are minimal closing costs, which usually include contract preparation by the seller, and perhaps a home inspection and system and appliance warranty to protect the buyer from unexpected costs. The updated title cost and recording are also usually paid by the seller. For each $100,000 of home value, on a thirty year amortizing term, the buyer pays about $1700 of principal in the first year to reduce the amount owed and build equity for conventional mortgage refinance. This equity build-up increases each year of the contract. The buyer also is responsible for property tax, insurance, and repairs and maintenance, and interest on the contract balance.
We have designed the website with sections to educate both parties. The most difficult part is agreeing on a valuation. We recommend using the current rent, and comparison to prices of similar houses. The essence of the valuation is a good faith negotiation between the buyer and seller. We will be working on special contract appraisals to help with this process, and Real Estate professionals may also assist the parties. There is a valuation calculator on the website to provide guidance as well.
We will be working with national mortgage companies to provide refinance guidance to the parties. By policy, FNMA, FHA, and FreddieMac all require 1 year and a day from the contract signing to consider this a refinance mortgage. Other considerations of mortgage qualification will apply, including amounts paid in by the buyer, home value, credit, income verification, and so forth. All of these elements are considered by the mortgage provider.
As with any written contract, a legal review is a good idea. We are working with a national provider of member legal services (Legal Shield) to provide a low-cost buyer review through their program. The buyer should know their rights and responsibilities, including late payment provisions, timing and payment of property taxes and insurance, title update and contract recording, and other elements to achieve the goals for both buyer and seller.
Talk to your landlord/option holder. There is a section of the website to help you, but since you are already living in the home and have an option price established, you should be able to agree on contract terms, prepare a QCD™ and move to immediate ownership with a schedule to refinance the QCD™ to a conventional mortgage when it is appropriate.
Provision can be made for contract assumption, if the seller is willing to allow it, and usually with the right of the seller to underwrite the new buyer who is replacing the current contract buyer.
Provision is usually made to retain the contract, which is recorded, in the event of death of either the seller or the buyer.
The underwriting process is strictly up to the seller. If your rent has been on time in most cases they will be inclined to approve you for the sale.
Some QCD™ buyers might consider listing their house for a conventional sale (a buyer with mortgage approval) with a Realtor, who then coordinates the sale to a new owner. The cost of their services would be deducted from any profit above the contract balance owed, and transfer costs as appropriate.
The process of approval for the contract is between you and the landlord, and in most cases if you have been a “good” tenant, with timely rental payments, they will be inclined to approve you for the QCD™.
The approval process is up to the landlord for your contract, and they will be more concerned about your rental payment history. If the mutual goal is to refinance to a conventional mortgage as soon as possible, there are credit repair agencies who can help you and the landlord potentially have your contract ownership payments added to your credit history file as the new homeowner, which may increase your score.
The landlord/seller makes the decision on whether to offer you the contract, and if you are a tenant in good standing in most cases they want to approve you. A future refinance to a conventional mortgage, if desired, will have third-party mortgage considerations. We will be working with mortgage companies to facilitate that process.
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In most cases, current owner-occupied house sellers cannot offer these contracts without their existing mortgage holders agreeing to the QCD™. (This is called a “due on sale clause). Most of the houses that will be offered under this plan will be prior rentals, whose landlord/owners have commercial financing that can cooperate with the process.
