They myth that NM Real Estate contracts are illegal or the devil is just that, a myth. They are definitely not illegal and are used quite often in New Mexico. A New Mexico Real Estate contract is a legally enforceable agreement where the seller agrees to sell and the buyer agrees to buy real property in New Mexico on a deferred payment arrangement. Once the buyer performs all of the obligations per the contract he/she is entitle the the deed. The Real Estate contract does not convey Legal title but does convey equitable title. Simply put it obligates the seller to convey legal title once the buyer has fulfilled the terms outlined in the Real Estate contract.
There are no requirements on how the contract terms should be wrote. Its all up to the buyer and seller. Typically amortized over 15 or even 30 years just as would be outlined in a regular mortgage. I have seen the interest rates pretty close to the going rate for a standard mortgage on up to a few points higher than that of a regular mortgage. So, if the going interest rate for a normal mortgage is 5% you might see an owner financing rate 6-8%. Once again, this is all negotiable and up to the buyer and seller to agree upon.
The obvious reason for doing a NM Real Estate Contract is that the parties don't want to or can't obtain a normal mortgage. This could be for numerous different reason:
-Maybe the buyer owns too many properties, makes enough money to support another payment but does not fit the guidelines of obtaining another mortgage thru a lender?? In the investment world this happens a lot with lenders getting tighter and tigher on the criteria
-Maybe the house does not qualify for a mortgage?? Normal mortgages require an appraisal to be completed and depending on the condition of the house it may not be a home that would fit the criteria that the bank is willing to lend on. Tyically seen in home that need renovating. There are no requirements as to the appraised value or condition of the property in owner financing unless the buyer requests it.
-Maybe, just maybe, the buyer is an independent contractor or a small business owner that has a great credit score and has plenty of money for a down payment but still does not meet the quidelines to obtain a mortgage thru a lender??
Point I am trying to make here is that these are not just used because the buyer has terrible credit, no money down and probably wont make the payments. (And yes, I have heard of them referred to that way). These can be used to achieve a common goal..... to buy and sell a home