Financing

Buying on contract differs in a few key ways from purchasing a home with a mortgage; but in many respects they are the same. In each, you acquire an “owner’s interest” in the property, are responsible for paying things such as taxes and insurance, and can legally sell or lease the home.

Both mortgages and contracts start with an initial loan balance, subject to an interest rate, that is paid down over a specified period of time. After all the scheduled payments have been made, both mortgages and real estate contracts end with you owning the property “free and clear.”

What’s the difference between a mortgage and a contract?

Mortgage: With mortgages, banks and other lenders transfer sums of money on behalf of the buyer to the seller in order to purchase the home.

Real estate contract: With a real estate contract the seller finances the purchase through their established equity, extending a loan directly to the buyer via the property.

The decision to extend credit through a contract is subject only to the seller’s own underwriting standards, not a third party such as Fannie Mae, Freddie Mac, or the Federal Housing Administration. At Contract Exchange, we believe this improves access to credit and homeownership to people who might not otherwise qualify to buy a home. As such, these contracts usually carry a higher interest rate than you might see on a conventional mortgage loan.