how does an assignment work in real estate

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10 Essential Things to Know About Real Estate Assignment Sales (for Sellers)

— We take our content seriously. This article was written by a real person at BREL.

What’s an assignment?

An assignment is when a Seller sells their interest in a property before they take possession – in other words, they sell the contract they have with the Builder to a new purchaser. When a Seller assigns a property, they aren’t actually selling the property (because they don’t own it yet) – they are selling their promise to purchase it, along with the rights and obligations of their Agreement of Purchase and Sale contract.  The Buyer of an assignment is essentially stepping into the shoes of the original purchaser.

The original purchaser is considered to be the Assignor; the new Buyer is the Assignee. The Assignee is the one who will complete the final sale with the Builder.

Do assignments only happen with pre-construction condos?

It’s possible to assign any type of property, pre-construction or resale, provided there aren’t restrictions against assignment in the original contract. An assignment allows a Buyer of a any kind of home to sell their interest in that property before they take possession of it.

Why would someone want to assign a condo?

Often with pre-construction sales, there’s a long time lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.

Another common reason why people want to assign a contract is financial. Sometimes, the original purchaser doesn’t have the funds or can’t get the financing to complete the sale, and it’s cheaper to assign the contract to a new purchaser, than it is to renege on the sale.

Lastly, assignment sales are also common with speculative investors who buy pre-construction properties with no intention of closing on them. In these cases, the investors are banking on quick price appreciation and are eager to lock in a profit now, vs. waiting for the original closing date.

What can be negotiated in an assignment sale?

Because the Assignee is taking over the original purchaser’s contract, they can’t renegotiate the price or terms of the contract with the Builder – they are simply taking over the contract as it already exists, and as you negotiated it.

In most cases, the Assignee will mirror the deposit that you made to the Builder…so if you made a 20% deposit, you can expect the new purchaser to do the same.

Most Sellers of assignments are looking to make a profit, and part of an assignment sale negotiation is agreeing on price. Your real estate agent can guide you on price, which will determine your profit (or loss).

Builder Approval and Fees

Remember that huge legal document you signed when you made an offer to buy a pre-construction condo? It’s time to take it out and actually read it.

Your Agreement of Purchase & Sale stipulated your rights to assign the contract. While most builders allow assignments, there is usually an assignment fee that must be paid to the Builder (we’ve seen everything from $750 to $7,000).

There may be additional requirements as well, the most common being that the Builder has to approve the assignment.

Marketing Restrictions

Most pre-construction Agreements of Purchase & Sale from Toronto Builders do not allow the marketing of an assignment…so while the Builder may give you the right to assign your contract, they restrict you from posting it to the MLS or advertising it online. This makes selling an assignment extremely difficult…if people don’t know it’s available for sale, how they can possibly buy it?

While it may be very tempting to flout the no-marketing rule, BE VERY CAREFUL. Buyers guilty of marketing an assignment against the rules can be considered to have breached the Agreement, and the Builder can cancel your contract and keep your deposit.

We don’t recommend advertising an assignment for sale if it’s against the rules in your contract.

So how the heck can I find a Buyer?

There are REALTORS who specialize in assignment sales and have a database of potential Buyers and investors looking for assignments. If you want to be connected with an agent who knows the ins and outs of assignment sales, get in touch…we know some of the best assignment agents in Toronto.

What are the tax implications of real estate assignment?

Always get tax advice from a certified accountant, not from the internet (lol).

But in general, any profit made from an assignment is taxable (and any loss can be written off). The new Buyer or Assignee will be responsible for paying land transfer taxes and any HST that might be due.

How much does it cost to assign a pre-construction condo?

In addition to the Builder assignment fees, you will likely have to pay a real estate commission (unless you find the Buyer yourself) and legal fees. Because assignments are more complicated, you can expect to pay higher legal fees than you would for a resale property.

How does the closing of an assignment work?

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. On the second closing (between the Builder and the Assignee), the Assignee pays the remaining amount to the Builder (usually with the help of a mortgage), and pays land transfer taxes. Title of the property transfers from the Builder to the Assignee at this point.

I suppose it could be said that there is a third closing too, when the Buyer takes possession of the property but doesn’t yet own it…this is known as the interim occupancy period. The interim occupancy occurs when the unit is ready to be occupied, but not ready to be registered with the city. Interim occupancy periods in Toronto range from a few months to a few years. During the interim occupancy period, the Buyer occupies the unit and pays the Builder an amount roughly equal to what their mortgage payment + condo fees + taxes would be. The timing of the assignment will dictate who completes the interim occupancy.

Assignments vs. Resale: Which is Better?

We often get calls from people who are debating whether they should assign a condo they bought, or wait for the building to register and then sell it as a typical resale condo.

Pros of Assigning vs. Waiting

• Get your deposit back and lock in your profit sooner
• Avoid paying land transfer taxes
• Avoid paying HST
• Maximize your return if prices are declining and you expect them to continue to decline
• Lifestyle – sometimes it just makes sense to move on

Cons of Assigning vs Waiting

• The pool of Buyers for assignment sales is much smaller than the pool of Buyers for resale properties, which could result in the sale taking a long time, getting a lower price than you would if you waited, or both.
• Marketing restrictions are annoying and reduce the chances of finding a Buyer
• Price – What is market value? If the condo building hasn’t registered and there haven’t been any resales yet, it can be difficult to determine how much the property is now worth. Assignment sales tend to sell for less than resale.
• Assignment sales can be complicated, so you want to make sure that you’re working with an agent who is experienced with assignment sales, and a good lawyer.

Still thinking of assignment your condo or house ? Get in touch and we’ll connect you with someone who specializes in assignment sales and can take you through the process.

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Raj Singh says:

What can be things to look for, especially determining market value for an assigned condo? I’m the assignee.

Sydonia Moton says:

Y would u need a lawyer when u buy a assignment property

Gideon Gyohannes says:

Good clear information!

Who pays the assignment fee to the developer? Assignor or Assignee?

Thanks Gideon 416 4591919

Melanie Piche says:

It’s almost always the Seller (though I suppose could be a point of negotiation).

Fiona Rourke says:

If there are 2 names on the agreement and 1 wants to leave and the other wants to remain… does the removing of 1 purchaser constitute an assignment

Brendan Powell says:

An assignment is one way to add or remove people from a contract, but not the only way…and not the simplest. Speak to your lawyer for advice on what makes the most sense for your specific situation. For a straightforward resale purchase you could probably just do an amendment signed by all parties. If it’s a preconstruction purchase with various deposits paid, etc it could be more complicated.

Katerina says:

Depends on the Developer. Some of them remove names via assignments only.

Haroon says:

Is there any difference in transaction process If assigner or seller of a pre constructio condo is a non resident ? Is seller required to get a clearance certificate from cRA to complete the transaction ?

Nathalie says:

Hello , i would like to know the exact steps for reassignment property please.

Amazing info. Thanks team. I may just touch base with you when my property in Stoney Creek is completed in. 2020. I may need to reassign it to someone Thanks

Victoria Bachlowa says:

If an assignor renegs on the deal and refuses to close because they figured out they could get more money and the assignment was already approved by the builder and all conditions fulfilled what can the Assignee do. I have $33,000 dollars in trust in the real estate’s trust fund. They sent me a mutual release which I have not signed. The interim occupancy is Feb. 1 and the closing is schedule for Mar. 1, 2019. I have financing in place, was ready to move in Feb. 1 and I have no where to live.

Definitely talk to your lawyer right away. They’ll want to look at your agreement of purchase and sale and will be able to advise you.

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. Can I assume that these closing happen at the same time? I’m not sure how and when I would be paid as the Assignor.

What happens to the deposits or any profits already paid if the developer cancels the project after an assignment?

Hi, Did you get answer to this? I did an assignment sale last year and now the builder is not completing apparently and they are asking for their money back. Can they do that? After legal transactions, the lawyer simply said “the deal didn’t go through”. Apparently builder and the person who assumed the assignment agreed on taking out the deal. What do I have to pay back after it was done a year ago

This is definitely a question for your lawyer – as realtors we are not involved in that part of the transaction. I would expect that just as the builder would have to refund your deposits, you would likely need to do the same…but talk to your lawyer. As to whether the builder can cancel a project, yes they always reserve that right (but the details of how and under what circumstances would be in your original purchase agreement). It’s one of the annoying risks in buying preconstruction!

I completed the sale of my assignment in Dec 2015 however the CRA says I should be reporting the capital income in 2016 when the assignee closed his deal with the developer in July 2016. That makes no sense to me since I got all my money in Dec 2015. Can you supply any clarification on that CRA policy please?

You’d have to talk to the CRA or an accountant – we’re real estate agents,so we can’t give tax advice.

Hassan says:

Hello, You said that there are two closings. The first one between the assignor and the assignee and the second one between the builder and the new buyer (assignee). My question is that in the first closing does the assignee have to pay the assignor the deposit they have paid and any profit in cash or will the bank add this to the assignee’s mortgage?

The person doing the assigning usually gets their money at the first closing.

Kathy says:

What is the typical real estate free to assign your contract with the builder ?

Hi Kathy While we do few assignments (as they are rarely successful, and builders do not make it easy), in past we have charged more or less the same as we do for a typical resale listing. While there are elements to assignments that should be easier than a resale (eg staging), many other aspects of assignments are much MORE time-consuming, and the risk much higher since attempts to find a buyer for assignments are often unsuccessful. It’s also important to note that due to the extra complication, lawyer’s fees to assign are typically higher than resale as well–although more $ for the purchase side vs the sale side.

Mitul Patel says:

If assignee has paid small amount of deposit plus the original 25% deposit that the assignor has paid to the builder and gets the Keys to the unit since interim possession has been completed, when the condo registration is done and assignee is getting mortgage from the Bank or Pays the remaining balance to the Builder using his savings and decides not to pay the Balance of the Profit amount to Assignor, what are the possibilities in this kind of scenario?

You’d need to talk to a lawyer to find out the options.

David says:

How much exactly do brokers get paid at sale of Assignment? i.e. Would the broker’s fee be a % of your assignment selling price or your home’s selling price? I’m really looking for a clear answer.

I am using this website’s calculator associated with selling your home in Ontario. But there is no information on selling assignments. https://wowa.ca/calculators/commission-calculator-ontario

Realtors set their own commission, so there is no set fee- that website is likely the commission that that agent offers. We often see commissions of 4-5% for assignments. The fee is a % of the price of the assignment – for example, you originally bought for $500K; you’re now assigning for $600K – commission would be payable on the $600K.

Candace says:

Question: if i bought a pre construction condo, can i sell it as soon as it closes or do i have to live in it for 1 year after closing in order to avoid capital gains taxes?

Or does the 1 year start as soon as you move in?

I would suggest you talk to your accountant re: HST credit implications and capital gains, but if you sell it for more than you paid for it, capital gains usually apply.

You mention avoid paying HST when you assign your property. What is the HST based on? It’s not a commercial property that you would pay HST. Explain. Thanks.

HST and assignments are complex and this question is best answered specific to your situation by your accountant and real estate lawyer. In some cases HST is applicable on assignment profits – more details can be found on the CRA website here:

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/gi-120/assignment-a-purchase-sale-agreement-a-new-house-condominium-unit.html

If you are a podcast listener, the true condos podcast is also a great resource.

https://truecondos.com/cra-cracking-down-on-assignments/

heres one for your comment, purchase pre construction from builder beginning of 2021, to be finished end of 2021, (semi detached) here we are end of 2022, both units are now ready. Had one assigned but because builder didnt accept within certain time frame(they also had a 90 day clause wherein we couldnt assign prior to 90 less firm closing date (WHICH MOVED 4 TIMES). Anyrate now we have a new assinor but the builder says we are in default from the first one and wants 50k to do the assignment (the agreement lists the possibility of assigning for 12k) Also this deal would include us loosing our whole deposit and paying the 12k(plus fees) would be in addition too the 130k we are already loosing. The second property we are trying to close but interest rates are riducous, together with closing costs(currently mortgage company is asking that my wife be added to that one, afraid to even ask this builder. Any advice on how to deal with this asshole greedy builder? We are simply asking for assignment as per contract and a small extension for the new buyer(week or two) Appreciate any advice. Thank you

Dealing with builders/developers can be extremely painful, much worse than resale transactions in our experience. Their contracts are written to protect THEM. Unfortunately all I can say is follow the advice of your lawyer.

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How To Navigate The Real Estate Assignment Contract

What is assignment of contract?

Assignment of contract vs double close

How to assign a contract

Assignment of contract pros and cons

Even the most left-brained, technical real estate practitioners may find themselves overwhelmed by the legal forms that have become synonymous with the investing industry. The assignment of contract strategy, in particular, has developed a confusing reputation for those unfamiliar with the concept of wholesaling. At the very least, there’s a good chance the “assignment of contract real estate” exit strategy sounds more like a foreign language to new investors than a viable means to an end.

A real estate assignment contract isn’t as complicated as many make it out to be, nor is it something to shy away from because of a lack of understanding. Instead, new investors need to learn how to assign a real estate contract as this particular exit strategy represents one of the best ways to break into the industry.

In this article, we will break down the elements of a real estate assignment contract, or a real estate wholesale contract, and provide strategies for how it can help investors further their careers. [ Thinking about investing in real estate? Register to attend a FREE online real estate class and learn how to get started investing in real estate. ]

What Is A Real Estate Assignment Contract?

A real estate assignment contract is a wholesale strategy used by real estate investors to facilitate the sale of a property between an owner and an end buyer. As its name suggests, contract assignment strategies will witness a subject property owner sign a contract with an investor that gives them the rights to buy the home. That’s an important distinction to make, as the contract only gives the investor the right to buy the home; they don’t actually follow through on a purchase. Once under contract, however, the investor retains the sole right to buy the home. That means they may then sell their rights to buy the house to another buyer. Therefore, when a wholesaler executes a contact assignment, they aren’t selling a house but rather their rights to buy a house. The end buyer will pay the wholesale a small assignment fee and buy the house from the original buyer.

The real estate assignment contract strategy is only as strong as the contracts used in the agreement. The language used in the respective contract is of the utmost importance and should clearly define what the investors and sellers expect out of the deal.

There are a couple of caveats to keep in mind when considering using sales contracts for real estate:

Contract prohibitions: Make sure the contract you have with the property seller does not have prohibitions for future assignments. This can create serious issues down the road. Make sure the contract is drafted by a lawyer that specializes in real estate assignment contract law.

Property-specific prohibitions: HUD homes (property obtained by the Department of Housing and Urban Development), real estate owned or REOs (foreclosed-upon property), and listed properties are not open to assignment contracts. REO properties, for example, have a 90-day period before being allowed to be resold.

What Is An Assignment Fee In Real Estate?

An assignment fee in real estate is the money a wholesaler can expect to receive from an end buyer when they sell them their rights to buy the subject property. In other words, the assignment fee serves as the monetary compensation awarded to the wholesaler for connecting the original seller with the end buyer.

Again, any contract used to disclose a wholesale deal should be completely transparent, and including the assignment fee is no exception. The terms of how an investor will be paid upon assigning a contract should, nonetheless, be spelled out in the contract itself.

The standard assignment fee is $5,000. However, every deal is different. Buyers differ on their needs and criteria for spending their money (e.g., rehabbing vs. buy-and-hold buyers). As with any negotiations , proper information is vital. Take the time to find out how much the property would realistically cost before and after repairs. Then, add your preferred assignment fee on top of it.

Traditionally, investors will receive a deposit when they sign the Assignment of Real Estate Purchase and Sale Agreement . The rest of the assignment fee will be paid out upon the deal closing.

Assignment Contract Vs Double Close

The real estate assignment contract strategy is just one of the two methods investors may use to wholesale a deal. In addition to assigning contracts, investors may also choose to double close. While both strategies are essentially variations of a wholesale deal, several differences must be noted.

A double closing, otherwise known as a back-to-back closing, will have investors actually purchase the home. However, instead of holding onto it, they will immediately sell the asset without rehabbing it. Double closings aren’t as traditional as fast as contract assignment, but they can be in the right situation. Double closings can also take as long as a few weeks. In the end, double closings aren’t all that different from a traditional buy and sell; they transpire over a meeter of weeks instead of months.

Assignment real estate strategies are usually the first option investors will want to consider, as they are slightly easier and less involved. That said, real estate assignment contract methods aren’t necessarily better; they are just different. The wholesale strategy an investor chooses is entirely dependent on their situation. For example, if a buyer cannot line up funding fast enough, they may need to initiate a double closing because they don’t have the capital to pay the acquisition costs and assignment fee. Meanwhile, select institutional lenders incorporate language against lending money in an assignment of contract scenario. Therefore, any subsequent wholesale will need to be an assignment of contract.

Double closings and contract assignments are simply two means of obtaining the same end. Neither is better than the other; they are meant to be used in different scenarios.

Flipping Real Estate Contracts

Those unfamiliar with the real estate contract assignment concept may know it as something else: flipping real estate contracts; if for nothing else, the two are one-in-the-same. Flipping real estate contracts is simply another way to refer to assigning a contract.

Is An Assignment Of Contract Legal?

Yes, an assignment of contract is legal when executed correctly. Wholesalers must follow local laws regulating the language of contracts, as some jurisdictions have more regulations than others. It is also becoming increasingly common to assign contracts to a legal entity or LLC rather than an individual, to prevent objections from the bank. Note that you will need written consent from all parties listed on the contract, and there cannot be any clauses present that violate the law. If you have any questions about the specific language to include in a contract, it’s always a good idea to consult a qualified real estate attorney.

When Will Assignments Not Be Enforced?

In certain cases, an assignment of contract will not be enforced. Most notably, if the contract violates the law or any local regulations it cannot be enforced. This is why it is always encouraged to understand real estate laws and policy as soon as you enter the industry. Further, working with a qualified attorney when crafting contracts can be beneficial.

It may seem obvious, but assignment contracts will not be enforced if the language is used incorrectly. If the language in a contract contradicts itself, or if the contract is not legally binding it cannot be enforced. Essentially if there is any anti-assignment language, this can void the contract. Finally, if the assignment violates what is included under the contract, for example by devaluing the item, the contract will likely not be enforced.

How To Assign A Real Estate Contract

A wholesaling investment strategy that utilizes assignment contracts has many advantages, one of them being a low barrier-to-entry for investors. However, despite its inherent profitability, there are a lot of investors that underestimate the process. While probably the easiest exit strategy in all of real estate investing, there are a number of steps that must be taken to ensure a timely and profitable contract assignment, not the least of which include:

Find the right property

Acquire a real estate contract template

Submit the contract

Assign the contract

Collect the fee

1. Find The Right Property

You need to prune your leads, whether from newspaper ads, online marketing, or direct mail marketing. Remember, you aren’t just looking for any seller: you need a motivated seller who will sell their property at a price that works with your investing strategy.

The difference between a regular seller and a motivated seller is the latter’s sense of urgency. A motivated seller wants their property sold now. Pick a seller who wants to be rid of their property in the quickest time possible. It could be because they’re moving out of state, or they want to buy another house in a different area ASAP. Or, they don’t want to live in that house anymore for personal reasons. The key is to know their motivation for selling and determine if that intent is enough to sell immediately.

With a better idea of who to buy from, wholesalers will have an easier time exercising one of several marketing strategies:

Direct Mail

Real Estate Meetings

Local Marketing

2. Acquire A Real Estate Contract Template

Real estate assignment contract templates are readily available online. Although it’s tempting to go the DIY route, it’s generally advisable to let a lawyer see it first. This way, you will have the comfort of knowing you are doing it right, and that you have counsel in case of any legal problems along the way.

One of the things proper wholesale real estate contracts add is the phrase “and/or assigns” next to your name. This clause will give you the authority to sell the property or assign the property to another buyer.

You do need to disclose this to the seller and explain the clause if needed. Assure them that they will still get the amount you both agreed upon, but it gives you deal flexibility down the road.

3. Submit The Contract

Depending on your state’s laws, you need to submit your real estate assignment contract to a title company, or a closing attorney, for a title search. These are independent parties that look into the history of a property, seeing that there are no liens attached to the title. They then sign off on the validity of the contract.

4. Assign The Contract

Finding your buyer, similar to finding a seller, requires proper segmentation. When searching for buyers, investors should exercise several avenues, including online marketing, listing websites, or networking groups. In the real estate industry, this process is called building a buyer’s list, and it is a crucial step to finding success in assigning contracts.

Once you have found a buyer (hopefully from your ever-growing buyer’s list), ensure your contract includes language that covers earnest money to be paid upfront. This grants you protection against a possible breach of contract. This also assures you that you will profit, whether the transaction closes or not, as earnest money is non-refundable. How much it is depends on you, as long as it is properly justified.

5. Collect The Fee

Your profit from a deal of this kind comes from both your assignment fee, as well as the difference between the agreed-upon value and how much you sell it to the buyer. If you and the seller decide you will buy the property for $75,000 and sell it for $80,000 to the buyer, you profit $5,000. The deal is closed once the buyer pays the full $80,000.

Assignment of Contract Pros

For many investors, the most attractive benefit of an assignment of contract is the ability to profit without ever purchasing a property. This is often what attracts people to start wholesaling, as it allows many to learn the ropes of real estate with relatively low stakes. An assignment fee can either be determined as a percentage of the purchase price or as a set amount determined by the wholesaler. A standard fee is around $5,000 per contract.

The profit potential is not the only positive associated with an assignment of contract. Investors also benefit from not being added to the title chain, which can greatly reduce the costs and timeline associated with a deal. This benefit can even transfer to the seller and end buyer, as they get to avoid paying a real estate agent fee by opting for an assignment of contract. Compared to a double close (another popular wholesaling strategy), investors can avoid two sets of closing costs. All of these pros can positively impact an investor’s bottom line, making this a highly desirable exit strategy.

Assignment of Contract Cons

Although there are numerous perks to an assignment of contract, there are a few downsides to be aware of before searching for your first wholesale deal. Namely, working with buyers and sellers who may not be familiar with wholesaling can be challenging. Investors need to be prepared to familiarize newcomers with the process and be ready to answer any questions. Occasionally, sellers will purposely not accept an assignment of contract situation. Investors should occasionally expect this, as to not get discouraged.

Another obstacle wholesalers may face when working with an assignment of contract is in cases where the end buyer wants to back out. This can happen if the buyer is not comfortable paying the assignment fee, or if they don’t have owner’s rights until the contract is fully assigned. The best way to protect yourself from situations like this is to form a reliable buyer’s list and be upfront with all of the information. It is always recommended to develop a solid contract as well.

Know that not all properties can be wholesaled, for example HUD houses. In these cases, there are often anti-assigned clauses preventing wholesalers from getting involved. Make sure you know how to identify these properties so you don’t waste your time. Keep in mind that while there are cons to this real estate exit strategy, the right preparation can help investors avoid any big challenges.

Assignment of Contract Template

If you decide to pursue a career wholesaling real estate, then you’ll want the tools that will make your life as easy as possible. The good news is that there are plenty of real estate tools and templates at your disposal so that you don’t have to reinvent the wheel! For instance, here is an assignment of contract template that you can use when you strike your first deal.

As with any part of the real estate investing trade, no single aspect will lead to success. However, understanding how a real estate assignment of contract works is vital for this business. When you comprehend the many layers of how contracts are assigned—and how wholesaling works from beginning to end—you’ll be a more informed, educated, and successful investor.

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Assignment Definition

Investing Strategy , Jargon, Legal, Terminology, Title

Table of Contents

• What Is an Assignment?
• What is an Assignment in Real Estate?
• What Does it Mean to Assign a Contract in Real Estate?
• How Does a Contract Assignment Work?
• Pros and Cons of Assigning Contracts

REtipster does not provide legal advice. The information in this article can be impacted by many unique variables. Always consult with a qualified legal professional before taking action.

An assignment or assignment of contract is a way to profit from a real estate transaction without becoming the owner of the property.

The assignment method is a standard tool in a real estate wholesaler’s kit and lowers the barrier to entry for a real estate investor because it does not require the wholesaler to use much (or any) of their own money to profit from a deal.

Contract assignment is a common wholesaling strategy where the seller and the wholesaler (acting as a middleman in this case) sign an agreement giving the wholesaler the sole right to buy a property at a specified price, within a certain period of time.

The wholesaler then finds another buyer and assigns the contract to him or her. The wholesaler isn’t selling the property to the end buyer because the wholesaler never takes title to the property during the process. The wholesaler is simply selling the contract, which gives the end buyer the right to buy the property in accordance with the original purchase agreement.

In doing this, the wholesaler can earn an assignment fee for putting the deal together.

Some states require a real estate wholesaler to be a licensed real estate agent, and the assignment strategy can’t be used for HUD homes and REOs.

The process for assigning a contract follows some common steps. In summary, it looks like this:

• Find the right property.
• Get a purchase agreement signed.
• Find an end buyer.
• Assign the contract.
• Close the transaction and collect your assignment fee.

We describe each step in the process below.

1. Find the Right Property

This is where the heavy lifting happens—investors use many different marketing tactics to find leads and identify properties that work with their investing strategy. Typically, for wholesaling to work, a wholesaler needs a motivated seller who wants to unload the property as soon as possible. That sense of urgency works to the wholesaler’s advantage in negotiating a price that will attract buyers and cover their assignment fee.

RELATED: What is “Driving for Dollars” and How Does It Work?

2. Get a Purchase Agreement Signed

Once a motivated seller has agreed to sell their property at a discounted price, they will sign a purchase agreement with the wholesaler. The purchase agreement needs to contain specific, clear language that allows the wholesaler (for example, you) to assign their rights in the agreement to a third party.

Note that most standard purchase agreements do not include this language by default. If you plan to assign this contract, make sure this language is included. You can consult an attorney to cover the correct verbiage in a way that the seller understands it.

RELATED: Wholesaling Made Simple! A Comprehensive Guide to Assigning Contracts

This can’t be stressed enough: It’s extremely important for a wholesaler to communicate with their seller about their intent to assign the contract. Many sellers are not familiar with the assignment process, so if the role of the buyer is going to change along the way, the seller needs to be aware of this on or before they sign the original purchase agreement.

3. Find an End Buyer

This is the other half of a wholesaler’s job—marketing to find buyers. Once they find an end buyer, the wholesaler can assign the contract to the new party and work with the original seller and the end buyer to schedule a closing date.

4. Assign the Contract

Assigning the contract works through a simple assignment agreement. This agreement allows the end buyer to step into the wholesaler’s shoes as the buyer in the original contract.

In other words, this document “replaces” the wholesaler with the new end buyer.

Most assignment contracts include language for a nonrefundable deposit from the end buyer, which protects the wholesaler if the buyer backs out. While you can download assignment contract templates online, most experts recommend having an attorney review your contracts. The assignment wording has to be precise and comply with applicable local laws to protect you from issues down the road.

5. Close the Transaction and Collect the Assignment Fee

Finally, you will receive your assignment fee (or wholesale fee) when the end buyer closes the deal.

The assignment fee is often the difference between the original purchase price (the price that the seller agreed with the wholesaler) and the end buyer’s purchase price (the price the wholesaler agreed with the end buyer), but it can also be a percentage of it or even a flat amount.

According to UpCounsel, most contract assignments are done for about $5,000, although depending on the property and the market, it could be higher or lower.

IMPORTANT: the end buyer will see precisely how much the assignment fee is. This is because they must sign two documents that show the original price and the assignment fee: the closing statement and the assignment agreement, respectively, to close the transaction.

In many cases, if the assignment fee is a reasonable amount relative to the purchase price, most buyers won’t take any issue with the wholesaler taking their fee—after all, the wholesaler made the deal happen, and it’s compensation for their efforts. However, if the assignment fee is too big (such as the wholesaler taking $20,000 from an original purchase price of $10,000, while the end buyer buys it for $50,000), it may ruffle some feathers and lead to uncomfortable questions.

In these instances where the wholesaler has a substantially higher profit margin, a wholesaler can instead do a double closing . In a double closing, the wholesaler closes two separate deals (one with the seller and another with the buyer) on the same day, but the seller and buyer cannot see the numbers and overall profit margin the wholesaler makes between the two transactions. This makes a double closing a much safer way to conclude a transaction.

Assigning contracts is a way to lower the barrier to entry for many new real estate investors; because they don’t need to put up their own money to buy a property or assume any risk in financing a deal.

The wholesaler isn’t part of the title chain, which streamlines the process and avoids the hassle of closing two times. Compared to the double-close strategy, assignment contracts require less paperwork and are usually less costly (because there is only one closing occurring, rather than two separate transactions).

On the downside, the wholesaler has to sell the property as-is, because they don’t own it at any point and they cannot make repairs or renovations to make the property look more attractive to a potential buyer. Financing may be much more difficult for the end buyer because many mortgage lenders won’t work with assigned contracts. Purchase Agreements also have expiration dates, which means the wholesaler has a limited window of time to find an end buyer and get the deal done.

Being successful with assignment contracts usually comes down to excellent marketing, networking, and communication between all parties involved. It’s all about developing strategies to find the right properties and having a solid network of investors you can assign them to quickly.

It’s also critical to be aware of any applicable laws in the jurisdiction where the wholesaler is working and holding any licenses required for these kinds of real estate transactions.

Related terms

Double closing, wholesaling (real estate wholesaling), transactional funding.

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Assigning Real Estate Contracts: Everything You Need to Know

Assigning real estate contracts refers to a method of earning money from buying and selling real estate. You find a seller who is eager to sell their property at a price that is far below its market value. 3 min read updated on February 01, 2023

Updated July 10, 2020:

Assigning real estate contracts refers to a method of earning money from buying and selling real estate. You find a seller who is eager to sell their property at a price that is far below its market value. Then, you find a buyer willing to pay a higher price for it.

How Contract Assignment Works

The first thing you need to do for contract assignment is to find a motivated seller. This is a person who owns a property, and for some reason, needs to sell in a hurry. This is generally because of a problem they are having, such as needing to move to a new home quickly. You'll need to be able to tell the difference between this sort of seller and someone who isn't in so much of a hurry to sell, and perhaps just wants to know what the property is worth.

You can find motivated sellers by placing ads in the newspaper, marketing on the internet, or sending direct mail. A combination of strategies works best.

The next thing you need to do is to obtain an assignment contract document. You can find templates on the web, but it's a good idea to have an attorney look it over before signing anything. That way, you will know that everything is completely legal. You will also be able to use that attorney if things don't work out as planned.

After the contract is signed, you submit it to a title company or an attorney who handles real estate closings . They will then do a title search. This ensures there are no existing liens against the property. This step is crucial because you do not want to buy a property that has a problem with the title. The title company is objective and independent and therefore makes sure everything is fair and legal.

At this point, you may search for a buyer. This will require more marketing strategies and can be a difficult process, but when you do find a buyer, you can move on to the next step - closing on the property. You'll need to collect a non-refundable deposit known as “earnest money” to make sure the buyer won't back out. If the buyer does change their mind, you get to keep the earnest money. This amount can be determined by you or the buyer.

Next, you get paid! The amount you receive will cover the amount you agreed to pay the property seller, along with an amount you get to keep in return for finding the buyer and making the transaction happen.

While this process takes place, you should make sure the seller understands how the process works , and that you will make a profit from the transaction. Otherwise, either the seller or buyer may decide they don't like the idea of your profiting from the sale and may back out. Reassure the seller that they are still getting the amount agreed upon for the sale.

Most contract assignments are done for $5,000 profit or less, but you can do it for a higher amount if you choose. If problems arise, it's possible to do a double or simultaneous closing, thereby keeping both parts of the sale separate and anonymous. Some title companies may not agree to do this, so if it becomes an issue, you should discuss it in advance.

Drawbacks of Contract Assignment

Contract assignment, or wholesaling, can be a  profitable venture , but there are a few pitfalls to watch out for, such as:

• You cannot make any repairs or renovations to the property because you do not own it at any point.
• You cannot offer any type of financing to the buyer.
• You must get the sale accomplished within a short amount of time before the contract expires.
• The process of closing on the property is detailed and can be complicated.
• You must find a buyer who is willing to pay in cash because it's hard to find a lender who will approve a mortgage for an assigned contract.

You also need to check the laws in your state, because in some states it is not legal to market a property that you don't own.

If you need more information or help with assigning real estate contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

• Property Contracts
• Sample Real Estate Contracts
• Land Sale Contracts
• Commercial Real Estate Contract Provisions
• Deed Contract Agreement
• Assignment Of Contracts
• Define Subject to Contract
• As Is Sales Contract
• Bill of Sale Land Contract
• Extension Addendum to Contract

Assignment of Contract – Assignable Contract Basics for Real Estate Investors

What is assignment of contract? Learn about this wholesaling strategy and why assignment agreements are the preferred solution for flipping real estate contracts.

Beginners to investing in real estate and wholesaling must navigate a complex landscape littered with confusing terms and strategies. One of the first concepts to understand before wholesaling is assignment of contract, also known as assignment of agreement or “flipping real estate contracts.”  

An assignment contract is the most popular exit strategy for wholesalers, and it isn’t as complicated as it may seem. What does assignment of contract mean? How can it be used to get into wholesaling? Here’s what you need to know.

What Is Assignment of Contract?

How assignment of contract works in real estate wholesaling, what is an assignment fee in real estate, assignment of agreement pros & cons, assignable contract faqs.

• Transactly Saves Time. Learn How Now!

Assignment of real estate purchase and sale agreement, or simply assignment of agreement or contract, is a real estate wholesale strategy that facilitates a sale between the property owner and the end buyer.

This strategy is also known as flipping real estate contracts because that’s essentially how it works:

• The wholesaler finds a property that’s already discounted or represents a great deal and enters into a contract with the seller,
• The contract contains an assignment clause that allows the wholesaler to assign the contract to someone else (if they choose to!), then
• The wholesaler can assign the contract to another party and receive an assignment fee when the transaction closes.

Assignment of contract in real estate is a popular strategy for beginners in real estate investment because it requires very little or even no capital. As long as you can find an interested buyer, you do not need to come up with a large sum of money to buy and then resell the property – you are only selling your right to buy it .

An assignment contract passes along your purchase rights as well as your contract obligations. After the contract assignment, you are no longer involved in the transaction with no right to make claims or responsibilities to get the transaction to closing.

Until you assign contract to someone else, however, you are completely on the hook for all contract responsibilities and rights.

This means that you are in control of the deal until you decide to assign the contract, but if you aren’t able to get someone to take over the contract, you are legally obligated to follow through with the sale .

Assignment of Contract vs Double Closing

Double closing and assignment of agreement are the two main real estate wholesaling exit strategies. Unlike the double closing strategy, an assignment contract does not require the wholesaler to purchase the property.

Assignment of contract is usually the preferred option because it can be completed in hours and does not require you to fund the purchase . Double closings take twice as much work and require a great deal of coordination. They are also illegal in some states.

Ready to see how an assignment contract actually works? Even though it has a low barrier to entry for beginner investors, the challenges of completing an assignment of contract shouldn’t be underestimated. Here are the general steps involved in wholesaling.

Step #1. Find a seller/property

The process begins by finding a property that you think is a good deal or a good investment and entering into a purchase agreement with the seller. Of course, not just any property is suitable for this strategy. You need to find a motivated seller willing to accept an assignment agreement and a price that works with your strategy. Direct mail marketing, online marketing, and checking the county delinquent tax list are just a few possible lead generation strategies you can employ.

Step #2: Enter into an assignable contract

The contract with the seller will be almost the same as a standard purchase agreement except it will contain an assignment clause.

An important element in an assignable purchase contract is “ and/or assigns ” next to your name as the buyer . The term “assigns” is used here as a noun to refer to a potential assignee. This is a basic assignment clause authorizing you to transfer your position and rights in the contract to an assignee if you choose.

The contract must also follow local laws regulating contract language. In some jurisdictions, assignment of contract is not allowed. It’s becoming increasingly common for wholesalers to assign agreements to an LLC instead of an individual. In this case, the LLC would be under contract with the seller. This can potentially bypass lender objections and even anti-assignment clauses for distressed properties. Rather than assigning the contract to someone else, the investor can reassign their interest in the LLC through an “assignment of membership interest.”

Note: even the presence of an assignment clause can make some sellers nervous or unwilling to make a deal . The seller may be picky about whom they want to buy the property, or they may be suspicious or concerned about the concept of assigning a contract to an unknown third party who may or may not be able to complete the sale.

The assignment clause should always be disclosed and explained to the seller. If they are nervous, they can be assured that they will still get the agreed-upon amount.

Step #3. Submit the assignment contract for a title search

Once you are under contract, you must typically submit the contract to a title company to perform the title search. This ensures there are no liens attached to the property.

Step #4. Find an end buyer to assign the contract

Next is the most challenging step: finding a buyer who can fulfill the contract’s original terms including the closing date and purchase price.

Successful wholesalers build buyers lists and employ marketing campaigns, social media, and networking to find a good match for an assignable contract.

Once you locate an end buyer, your contract should include earnest money the buyer must pay upfront. This gives you some protection if the buyer breaches the contract and, potentially, causes you to breach your contract with the seller. With a non-refundable deposit, you can be sure your earnest money to the seller will be covered in a worst-case scenario.

You can see an assignment of contract example here between an assignor and assignee.

Step #5. Receive your assignment fee

The final step is receiving your assignment fee. This fee is your profit from the transaction, and it’s usually paid when the transaction closes.

The assignment fee is how the wholesaler makes money through an assignment contract. This fee is paid by the end buyer when they purchase the right to buy the property as compensation for being connected to the original seller. Assignment contracts should clearly spell out the assignment fee and how it will be paid.

An assignment fee in real estate replaces the broker or Realtor fee in a typical transaction as the assignor or investor is bringing together the seller and end buyer.

The standard real estate assignment fee is $5,000 . However, it varies by transaction and calculating the assignment fee may be higher or lower depending on whether the buyer is buying and holding the property or rehabbing and flipping.

The assignment fee is not always a flat amount. The difference between the agreed-upon price with the seller and the end buyer is the profit you stand to earn as the assignor. If you agreed to purchase the property for $150,000 from the seller and assign the contract to a buyer for $200,000, your assignment fee or profit would be $50,000.

In most cases, an investor receives a deposit when the Assignment of Purchase and Sale Agreement is signed with the rest paid at closing.

Be aware that assignment agreements can have a bad reputation . This is usually the case when the end buyer and seller are unsatisfied, realizing they could have sold higher or bought lower and essentially paid thousands to an investor who never even wanted to buy the property.

Opting for the standard, flat assignment fee is much more readily accepted by sellers and buyers as it’s comparable to a real estate agent’s commission or even much lower and the parties can avoid working with an agent.

Real estate investors enjoy many benefits of an assignment of contract:

• This strategy requires little or no capital which makes it a popular entry to wholesaling as investors learn the ropes.
• Investors are not added to the title chain and never own the property which reduces costs and the amount of time the deal takes.
• An assignment of agreement is easier and faster than double closing which requires two separate closings and two sets of fees and disclosures.
• Wholesaling can be a great tool to expand an investor’s network for future opportunities.

As with most things, there are important drawbacks to consider. Before jumping into wholesaling and flipping real estate contracts, consider the downsides .

• It can be difficult to work with sellers and buyers who are not familiar with wholesaling or assignment agreements.
• Some sellers avoid or decline assignment of contract offers because they are suspicious of the arrangement, think it is too risky, or want to know who they are selling to.
• There is a limited time to find an end buyer. Without a reliable buyer’s list, it can be very challenging to find a viable end buyer before the closing date.
• The end buyer may back out at the last minute. This may happen if they do not have owner’s rights until the contract is assigned or they do not want to pay an assignment fee.
• Not all properties are eligible for wholesaling like HUD and REO properties. There may be anti-assignment clauses or other hurdles. It is possible to get around this by purchasing the property with an LLC which can then be sold, but this is a level of complication that many wholesalers want to avoid.
• Assignors do not have owner’s rights. When the property is under contract, investors cannot make repairs or improvements. This makes it harder to assign a contract for a distressed property in poor condition.
• It can be hard to confirm an end buyer is qualified. The end buyer is responsible for paying the agreed upon price set by the seller and assignor. Many lenders do not handle assignment agreements which usually means turning to all-cash end buyers. Depending on the market, they can be hard to find.

In the worst-case scenario, if a wholesaling deal falls through because the end buyer backs out, the investor or assignor is still responsible for buying the property and must follow through with the purchase agreement. If you do not, you are in breach of contract and lose the earnest money you put down.

To avoid this worst-case scenario, be prepared with a good buyer’s list. You should only put properties under contract that you consider a good deal and you can market to other investors or homeowners. You may be able to get more time by asking for an extension to the assignment of contract while you find another buyer or even turn to other wholesalers to see if they have someone who would be a good fit.

What is the difference between assignor vs assignee?

In an assignment clause, the assignor is the buyer who then assigns the contract to an assignee. The assignee is the end buyer or final buyer who becomes the owner when the transaction closes. After the assignment, contract rights and obligations are transferred from the assignor to the assignee.

What Is an assignable contract?

An assignable contract in real estate is a purchase agreement that allows the buyer to assign their rights and obligations to another party before the contract expires. The assignee then becomes obligated to meet the terms of the contract and, at closing, get title to the property.

Is Assignment of Agreement Legal?

Assignment of contract is legal as long as state regulations are followed and it’s an assignable contract. The terms of your agreement with the seller must allow for the contract to be assumed. To be legal and enforceable, the following general requirements must be met.

• The assignment does not violate state law or public policy. In some states and jurisdictions, contract assignments are prohibited.
• There is no assignment clause prohibiting assignment.
• There is written consent between all parties.
• The property does not have restrictions prohibiting assignment. Some properties have deed restrictions or anti-assignment clauses prohibiting assignment of contract within a specific period of time. This includes HUD properties, short sales, and REO properties which usually prohibit a property from being resold for 90 days. There is potentially a way around these non-assignable contracts using an LLC.

Can a non-assignable contract still be assigned?

Even an non-assignable contract can become an assignable contract in some cases. A common approach is creating an agreement with an LLC or trust as the purchaser. The investor can then assign the entity to someone else because the contractual rights and obligations are the entity’s.

Assignment agreements are not as complicated as they may sound, and they offer an excellent entry into real estate investing without significant capital. A transaction coordinator at Transactly can be an invaluable solution, no matter your volume, to keep your wholesaling business on track and facilitate every step of the transaction to closing – and your assignment fee!

Adam Valley

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What Is an Assignment of Contract? [How It Works In Real Estate]

What Is an Assignment of Contract?

One intriguing strategy in real estate investing that often stirs interest among newbie investors is the assignment of contracts. This approach, which allows an investor to pass the contractual rights and obligations of a property purchase contract to another buyer, is seen to provide highly profitable opportunities.  

If you are an investor who wants to try this technique to achieve financial freedom, this blog is for you! Here, we'll delve into the nitty-gritty of contract assignment, explaining its mechanism, benefits, potential pitfalls, and the crucial steps involved. We hope that after reading this blog, you can navigate the real estate market with confidence!

What Is an Assignment of a Contract in Real Estate?

In real estate wholesaling, an investor agrees to buy a personal property, often at a below-market price, then assigns the contract to a different buyer, often another investor, for a higher price. 

The difference between the contracted price and the price paid by the end buyer represents the wholesaler's profit, known as the assignment fee. 

For example, an investor might secure a contract to purchase a personal property for $100,000, then find an end buyer or new party willing to pay $120,000 for the same property. By assigning the contract to the end buyer, the investor earns a $20,000 assignment fee. 

However, it's crucial to note that not all real estate contracts can be freely assigned. Some contracts may include a "no assignment" clause that prevents the transfer of the contract to another party. 

Thus, an investor needs to ensure that assigning contractual rights is allowed before proceeding with this strategy. If an assignment clause is not present in the contract, the investor may need to negotiate with the original party or owner to include in the contract rights it or find an alternate method to transfer the property to a new party.

In essence, an assignment contract is a way for real estate investors to connect sellers and buyers, while generating a profit from the transaction without needing to purchase, own, or manage the property themselves. It's a strategy that requires careful planning, thorough due diligence, and an understanding of real estate laws and market conditions.

Assignment Contract vs. Double Closing

Both assignment contracts and double closings are strategies used in real estate investing, particularly wholesaling, but they function differently.

As previously discussed, an assignment of contract involves the wholesaler (assignor) transferring their contractual rights in a property purchase agreement to another party (assignee), typically another investor. 

The wholesaler never actually purchases the property . Instead, they sell their contract to buy the property. The assignee pays an assignment fee to the wholesaler, then proceeds to close the deal with the original seller. In this arrangement, the end buyer is aware of the wholesaler's profit.

Meanwhile, double closing , also known as a "simultaneous close," involves the wholesaler actually purchasing the property before quickly reselling it to the end buyer. This is perhaps the main difference between the two.

Essentially, there are two separate transactions: one where the wholesaler buys from the original seller and another where the wholesaler sells to the end buyer. 

Both transactions of the contract occurs back-to-back, even on the same day. The wholesaler uses the funds from the end buyer to pay the original seller and keeps the difference as profit. This approach allows the wholesaler's profit to remain hidden from all parties.

Is an Assignment Contract Considered Legal?

Yes, an assignment contract is generally considered legal in real estate transactions. It is a common practice, especially in real estate investing and wholesaling.

However, the legality can depend on several factors, including the terms of the original contract and the laws in a particular area.

Some contracts may disallow assignment through a clause that "prohibits the assignment of the contract without the consent of the other party." In such cases, assignment of the written contract without consent would violate public policy and could potentially lead to legal repercussions. This may also encourage litigation.

Additionally, while an assignment contract is generally legal, some states in the U.S. have specific rules and regulations about how real estate contract assignments and wholesaling, more generally, should be conducted. 

Some require specific disclosures to be given to the other party to the contract or have particular rules about how the transaction can be advertised. Some do not also allow material alteration, In some jurisdictions, regular wholesaling activity might require a real estate license, contract expiration date for commercial contracts, etc.

Pros and Cons of Assignment of Contract in Real Estate

The assignment of contracts in real estate comes with its own set of advantages and disadvantages, which investors need to consider carefully before entering any deal.

To help you decide if this real estate investing strategy is indeed for you, read the following pros and cons.

Pros of Assignment of Contract

• Less Capital Required: Because the wholesaler is simply assigning the contract and not actually purchasing the property, less capital is required compared to traditional real estate transactions.
• Profit Potential: Assigning a contract can be profitable, especially when properties are secured under market value and the seller and buyer guarantees performance. The difference between the contract agreement price from the assignee and the purchase price the end buyer pays can result in significant earnings.
• Faster Transactions: Assignments often lead to faster transactions as the assignor is not taking possession of the property. They don't have to do heavy obligations such as a title search, contact a company to make repairs, etc. Once a suitable assignee is found, the existing contract can be assigned and the transaction completed.

Cons of Assignment of Contract

• Dependent on Buyers: Wholesalers are reliant on finding end buyers and getting a closing date. If an assignee can't be found in time, the wholesaler may be forced to back out of the deal or risk legal consequences.
• Limited Control: The wholesaler doesn't own the property and therefore has limited control over it. They can't make improvements or changes to increase its value since it isn't part of their obligations.
• Transparency of Profit: In an assignment, the assignee can see how much profit the assignor is making, which could potentially lead to negotiations or dissatisfaction in the obligations. But, of course, the assignor warrants that the fee is fair.
• Legal Considerations: You cannot assign rights to all types of contracts, and the federal government law may have specific regulations around how assignments work. Wholesalers must be aware of the legal landscape to ensure they conduct business following the law and that the two parties they will involve know the legal term of transfer.

Steps in Contract Assignment in Real Estate

Contract assignment in real estate can be a profitable strategy when done correctly. Each step in this process requires careful attention to detail and due diligence so as not to break the law. It is ideal to consult with a real estate attorney or other professionals before doing any transfer of property.

Nevertheless, here are the steps typically involved in a contract assignment in real estate.

Step 1. Find the Right Investment Property

The first step in contract assignment is identifying a suitable investment property. You need to find a property that can be purchased under market value and resold at a profit. 

This could be a distressed property, a foreclosed property, or simply a property that a seller needs to unload quickly. Market research and property analysis are critical at this stage.

Step 2. Prepare the Real Estate Contract 

Once a property has been identified, you need to prepare a real estate purchase agreement. This is the contract agreement that you will eventually assign to another buyer. It's crucial that this original contract either expressly allows for assignment or at least does not prohibit it.

If you are using a template from others or it has a trade name, make sure you are not going against the intellectual property law. There are already certain claims in the past about this, so be cautious.

Step 3. Submit the Contract

After preparing the original contract, it needs to be submitted to the seller. The seller may accept the contract as is, reject it outright, or propose changes. If changes are proposed, negotiations will take place until an agreement is reached. 

Step 4. Find an End Buyer Who Will Accept the Contractual Obligations

With an accepted contract in hand, you can now seek an end buyer to whom the contract will be assigned.

This could be another investor or a traditional homebuyer. Marketing the original contract can involve networking, advertising on real estate platforms, or working with a real estate agent.

Step 5. Assign the Contract to an End Buyer

After identifying an end buyer, you will assign or transfer the existing contract agreement to them (this may be an individual or a real estate company).

This involves an assignment agreement, which transfers your contractual rights and obligations under the original purchase contract agreement to one party or the end buyer (real estate company or investor).

The assignment agreement should clearly outline the original terms of the assignment, including the assignment fee that you, as the assignor, will receive.

Step 6. Collect the Fee

After the assignment agreement has been signed and transferred on the closing date, you can collect the assignment fee from one party. This is your profit from the assignment contract transaction.

The closing process then proceeds between the original seller and the end buyer, without any further involvement on your part. The property ownership will be transferred to the end buyer and you would no longer have any responsibilities or duties with them.

Final Thoughts: What are Assignment Contracts? [How Does Assignment of Contract Work in Real Estate]

Whether you're a seasoned real estate wholesaler or just starting, it's clear that understanding assignment contracts and how they function within the real estate sector can open doors to new opportunities and potentially profitable ventures. 

With the right approach, a keen understanding of the property market, negotiation skills, thorough due diligence, and creativity, these contracts can be your main income stream.

If you want to find leads on properties that you can assign to another buyer, reach out to us at Property Leads . We offer highly motivated seller leads in your target area for a very reasonable price. We guarantee a high conversion rate since we generate our leads through SEO.

Fill out our form below to start finding the best contract reassignment deals!

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How Do Assignments Work in Real Estate?

As real estate investors consider different investing strategies, they often hear about wholesaling. One of the most important parts of completing a wholesale deal is to assign the process to another investor. So how do assignments work?

Assignment, a legal process, entails granting—or assigning—one party’s rights and responsibilities in a contract to a third party. This third party “steps into the shoes” of the person they replace, fulfilling the remaining contract responsibilities through the real estate closing process.

In the following article, I’ll expand on real estate assignments and how they relate to wholesaling. Specifically, I’ll cover each of the following topics:

What Are Real Estate Assignments

• How Assignments Relate to Wholesaling

Advantages to Real Estate Assignments

Disadvantages to real estate assignments, final thoughts on assignments.

As stated above, assignment constitutes a specific legal action involving contracts. Prior to executing an assignment, an actual contract between two parties must exist. After signing a contract, one party (the “assignor”) transfers—or assigns—his or her obligations and benefits under the contract to a third party (the “assignee”).  In simple terms, the assignee “steps in the shoes” of the assignor and assumes all associated contractual rights and responsibilities.

While assignment can occur with any type of contract, it plays a key role in real estate investing. You may not think much of the phrase, but when a property seller and buyer go “under contract,” they have, quite literally, entered a legal contract. As such, the potential for contract assignment exists, with the buyer assigning his or her rights and obligations regarding the home purchase to a third-party buyer. Following assignment, this third-party buyer then becomes responsible for the remainder of the closing process, purchasing the property him- or herself.

NOTE: I say the potential for the assignment above, because if a contract explicitly prohibits assignment, then buyers cannot assign their contract rights. When purchasing a bank-owned property, the bank-seller typically includes this sort of clause in their sales contracts.

How Assignments Work in Wholesaling

The above process of assignment serves as the foundation of the real estate wholesaling strategy. Broadly speaking, wholesalers make money by getting a property under contract and then assigning it to someone else for a fee. Here’s what it looks like, step-by-step:

• Step 1: The wholesaler goes under contract to purchase a home, typically a distressed property.
• Step 2 : The wholesaler then shops the contract/deal around to potential buyers, generally house flippers.
• Step 3 : With a third-party buyer confirmed, the wholesaler assigns the new buyer the contract rights and obligations, and this new buyer then carries out the remainder of the closing process and actually purchases the home.

For example, assume you go under contract with a seller to purchase a property for $100,000. If your goal is to wholesale—and not actually purchase—that property, you can then find a motivated buyer (typically a house flipper), and assign him or her your contract rights for a $5,000 assignment fee (the actual fee amount will be driven by your market and the nature of the deal). This buyer (the “assignee”) then continues the closing process in your place. In this scenario, you earn a $5,000 fee without the risk associated with buying, renovating, and selling a property—an appealing prospect.

The above description should definitely make some of the major advantages to assignments and wholesaling obvious. If you’re considering this strategy, here’s a fairly comprehensive list of the benefits of wholesaling:

• Speed: With a wholesale deal, you’re only involved for as long as it takes to find a third-party buyer to whom you can assign the contract. Typically, it only takes one to two weeks to collect your check.
• Simplicity: Unlike house flips, with wholesaling, you only need to 1) make an offer, 2) assign the contract to a third party, and 3) collect your check—a straightforward, simple process.
• No rehab period: While home flippers typically command higher profits than wholesalers, the actual rehab work can be a tremendous pain, often requiring more time, money, and effort than initially budgeted.
• No financing requirements: As wholesalers don’t actually purchase these properties, they don’t need to apply for financing and meet the associated requirements. No loan deadlines or interest payments exist with wholesaling.
• Profit: Even though wholesalers don’t command the same returns as home flippers, these deals still result in solid profits.  They take far less time and work, which means that, relative to your actual time commitments, you’ll realize great returns.
• Fewer out-of-pocket costs: With a wholesaling deal, in addition to your general marketing expenses, you’ll only need to put down some earnest money for the deal. However, $500 will generally more than suffice, and you can add a clause stating that you’ll only provide your earnest money once the seller accepts the offer, meaning you know the deal will move forward.

While plenty of advantages exist to real estate assignments and the wholesale investing strategy, investors should also have a thorough understanding of the associated drawbacks before diving headfirst into a deal. Here are some of the potential pitfalls to consider:

• Not having a buyer : It seems obvious to state, but a successful wholesale deal depends upon actually finding a buyer to whom you can assign your contract. Most contracts have a specific date by which the wholesaler’s new buyer needs to close. If wholesalers fail to find a buyer within the designated timeline, the deal falls apart and they lose their earnest money.
• Unpredictable income: This drawback actually applies to a house flipping as well, but it’s worth noting here. If you don’t complete any wholesaling deals, you don’t have any income. And while established wholesalers can build up a pipeline of deals, somewhat smoothing income, it takes time to reach this status. During these initial stages, new wholesalers need to remain particularly diligent with their finances.
• Massive marketing efforts: Successful wholesalers don’t just casually ask around about potential deals. To build an established system, people need to undertake significant marketing efforts to find both motivated sellers and future investors to whom you can assign contracts.
• Legal compliance: When dealing with contract law and assignments, buyers face a host of compliance issues not necessarily relevant to a standard deal. For example, listing a “property for sale” instead of “interest in a real estate transaction for sale” could possibly lead to an illegal transaction.

For many new real estate investors, the initial capital requirements of building a property portfolio can seem absolutely prohibitive. Understanding the assignment and wholesaling world represents a great strategy for these folks. With little up-front capital, wholesalers can begin finding and executing profitable deals. And while these deals may not bring in the same returns as a house flip, if done successfully, wholesaling can be an outstanding strategy for building that initial capital.

Furthermore, wholesaling doesn’t represent an either/or strategy. In other words, if you build a successful wholesaling system, you can still flip houses or undertake a buy-and-hold strategy on the side. This actually represents a great hybrid investment strategy. By funneling a portion of your wholesaling profits into down payments for a portfolio of rental properties, you can generate current cash flow while still reaping the long-term wealth-building benefits of having tenants pay down your mortgages.

Learn how to make money flipping real estate with us by attending our next webinar .

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How Assignments Really Work ?

What is an Assignment in Real Estate?

An assignment is a transaction of a home where the buyer of the property (the assignor) allows another buyer (the assignee) to take over the buyer’s rights and obligations of the Agreement of Purchase and Sale before the original buyer closes on the property. Where most resale real estate deals close in 30 to 60 days, assignments are most commonly found in pre-sales, where there’s a long closing.

How Do You Know if You Can Assign a Home?

The Agreement of Purchase and Sale of a home, either pre-sale or resale, will outline whether you can or cannot assign the home.

If you can assign the Agreement of Purchase and Sale:

It’s typical to find the assignment will come with certain terms. Typical terms include:

A time frame of when you can and/or cannot assign the contract An assignment fee applied by the seller, usually for administrative costs Marketing restrictions on when and where you can market the Agreement of Purchase and sale for assignment Are There Tax Implications on Assignments?

Generally, the assignor pays a tax on the profit of the assignment as part of income tax. As the assignee takes responsibility of all terms in the Agreement of Purchase and Sale, the assignee pays the taxes associated with the sale of the home, such as Goods and Services Tax (GST) and Property Transfer Tax (PTT). As each scenario differs, before making a decision, be sure to speak to a licensed Realtor.

Are There Risks Involved?

It’s important to know that if a contract is assigned, and the assignee does not follow through on completing on the sale of the home, the responsibility to close on the Agreement of Purchase and Sale usually defaults back to the assignor.

Looking for more information on Assignements. Contact Natalie Genest for current assignement listings. [email protected]

The Future is Calling. Join us on July 1st for something big.

What is an Assignment Contract in Wholesale Real Estate?

The most successful real estate investors are ones who market to and work directly with homeowners to buy property. When investors talk directly to sellers, they have several options for closing lucrative real estate deals. For real estate investors who don’t have a lot of time or money to invest in any single property, wholesaling is an attractive option.

Wholesaling real estate is a great way to get into real estate investing, and it’s a strategy that allows you to invest without putting down any upfront capital of your own. 

But how? 

In real estate wholesaling, a wholesaler contracts an off-market home with a seller, then finds an interested third-party buyer to purchase the contract at a higher price. The wholesaler then keeps the difference as profit. This process of selling a contract before the wholesaler purchases the property themselves is called an assignment of contract . 

What is an assignment of contract? 

An assignment of contract is a transfer of contractual obligations from one party to another. In real estate, an investor makes a deal with a property owner, and then sells the contract to a third party before the home closes. The investor collects an assignment fee for finding the deal. 

You may have dealt with situations that are similar to an assignment of contract. For example, if the mortgage on your home has ever transferred from one company to another, you’ve been privy to an assignment of mortgage, where your original mortgage company has transferred their contractual obligations to a new company. 

Do I need to put down any of my own money using an assignment of contract? 

No! The benefit to wholesaling with an assignment of contract in real estate is that you don’t need to use any of your own money in order to profit from a real estate transaction. Minimal costs to wholesalers include building a quality list of leads (often distressed properties) through driving for dollars, and sending mail to those leads. 

What is the difference between assignment of contract and double closing? 

Unlike an assignment of contract in real estate, double-closing involves two separate transactions with the seller and buyer. In double closing, a wholesaler purchases a home in their name, and then sells the property within 30 days without making any updates to the home. The benefit of double closing is that a wholesaler can keep their own profit undisclosed to both the seller and the buyer. The downside is that the investor has to put up their own money in order to close the first part of this real estate deal.

How do I find someone to buy my contract?

Finding buyers to purchase your real estate contracts may seem daunting, but there are lots of investors and entrepreneurs who are looking for their next deal. A great way to start building a buyers list is to go to local REI meet-ups and exchange business cards with investors who are actively making deals. You can also post on social media to get the word out about your business. As you’re out driving for dollars, keep an eye out for signs that say “For Rent.” You may be able to connect with those owners to see if they’re interested in growing their rental portfolio.  

Is an assignment of contract in real estate legal? 

Yes - but it’s important to research and keep an eye on the wholesaling regulations in your state. In Illinois, for example, non-licensed investors are allowed to wholesale one real estate deal every 12 months. Investors in Illinois who want to do more wholesaling deals than one per year need to obtain a license. In Oklahoma, real estate investors are required to obtain a license in order to sell an assignment of contract and must abide by all state real estate laws. Be sure to review the laws in your state and keep up to date on local real estate investing news in your area. 

Can I make money wholesaling?

Yes! Just take a look at a few DealMachine customer success stories. Real estate investor Ramin Qudus made $50,000 on a wholesaling deal during his 7-day trial with DealMachine. Rita Grimes talked with our Director of Community Experience, Elise Knaack, about how she was able to make $178,000 in the first half of 2021 through wholesaling and driving for dollars. Just one week after Ashley and Anthony Warren started marking to their D4D leads, they had their first deal under contract for $62,000. 

About David Lecko

David Lecko is the CEO of DealMachine. DealMachine helps real estate investors get more deals for less money with software for lead generation, lead filtering and targeting, marketing and outreach, and acquisitions and dispositions.

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Suspended Counterparty Program

FHFA established the Suspended Counterparty Program to help address the risk to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (“the regulated entities”) presented by individuals and entities with a history of fraud or other financial misconduct. Under this program, FHFA may issue orders suspending an individual or entity from doing business with the regulated entities.

FHFA maintains a list at this page of each person that is currently suspended under the Suspended Counterparty Program.

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Why it's called a 'real estate practice'

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Picture real estate as the ultimate sports arena. Agents are like seasoned athletes, always training, strategizing, and refining their techniques. The market is their playing field—unpredictable and full of challenges. Just like athletes, real estate professionals must stay in top form, learning new plays and adapting to the game’s ever-changing dynamics . It’s all about practice, skill, and perseverance, ensuring you’re ready to score big for your clients—and yourself. The more clients you help achieve their goals, the faster you’ll achieve your own.

Improving your real estate practice

How can you improve your real estate practice? What steps can you take to reach the next level faster? What should you be practicing in your real estate business? Here are some action steps you can deploy today to move the needle faster.

Join a coaching program

Coaching programs can provide you with a deep dive into nearly any avenue you wish to grow your business.

Know Your Market Inside and Out

Study the market relentlessly on a daily basis. Know it better than anyone else! It only takes 30 minutes each day to build your knowledge and become a specialist. Knowledge equals confidence, ignorance equals fear. The more you know, the more confidence you’ll have speaking about real estate. Remember: secret agents have skinny kids.

• Choose a big enough area without trying to learn your entire town. Focus on areas that are desirable, turn over at a reasonable rate, have low average days on the market, and a good average sale price.

• Call your MLS to set up a custom ‘daily hotsheet’ for those areas and review the report daily. This will be sent to your email automatically once you set it up.

• Further customize your reports by using Altos Research and List Reports. Read their short reports daily. Supplement with your monthly Board of Realtors reports. Use all this information for your newsletter, social media posts, prospecting calls, and daily conversations.

• Always know the following: Is inventory increasing or decreasing in your market? What’s hot and what’s not? Where are all the price reductions happening? What’s the average sale price in the areas you work in? List to sell price ratio? Competing offers or price reductions?

• Know what’s driving sales in your market. Are companies hiring or firing? Are the schools improving or declining? Who are the developers and what are they developing?

• Is there new construction in your market? Where? What price ranges? Do the builders have special financing?

Know mortgages

You don’t have to know what your favorite loan originator does, but you do need to know enough to advise your clients about different types of loans and which lenders may be the best match for them.

Know the following:

• What is today’s mortgage interest rate for a 30-year fixed rate mortgage?

• What are the adjustable rate mortgage rates?

• What is a 3-2-1 buydown or a 2-1 buydown?

• How can someone pay points to buy down and lock in a lower 30-year rate?

• What is a portfolio loan and who should utilize one?

• What are builders in your market offering regarding mortgage loans?

• Have at least four different mortgage lenders for different types of clients. One for first-time buyers, one for standard move-up and move-down buyers, one for higher-end executive types, and one with portfolio loans for the self-employed.

• Have coffee with each lender at least once per month and ask who they’ve just prequalified who needs an agent. Ask them what their best products are and why.

Practice pricing property

This is a key skill to practice regularly, not just when you have a new listing opportunity.

• Preview homes in each area and each price range where you’re practicing real estate. Take notes on what you get for the money (or what you don’t get) in each area.

• Practice pricing property with the help of your coach or broker. Take a subject property and see how your CMA compares to your broker’s or coach’s.

• Take an appraisal class when your qualifying education is due.

• Tour new construction models and get a feel for pricing on each product for each builder.

Be relentlessly proactive in generating new leads daily

Talk with both people who already know you (your database of past clients and centers of influence), as well as people you don’t already know.

• Hold yourself accountable to a minimum of five contacts daily with people from your database. Get your scripts from Premier Coaching.

• Hold yourself accountable to speaking to at least two people every day from the most likely to transact categories such as expireds, for sale by owners, for rent by owners, and probate.

• Ask for buyer referrals (and pay a referral fee) from busier agents who aren’t pursuing their sign calls or open house leads.

• Hold open houses yourself until you have at least three pre-approved buyers at all times. Lather, rinse, repeat!

• Follow up immediately with all leads you generate or who are referred to you.

Actively expand your personal and business centers of influence

10% of your database will transact or refer someone to you each year, assuming you’re following the previous points and speaking with at least five people daily from your list.

• 10% of 100 people = 10 transactions. 10% of 200 is 20 deals and so on. Your list doesn’t need to be gigantic but it should be curated and communicated with regularly.

• Refer to our podcasts dedicated to growing your centers of influence as well as the coaching material in Premier Coaching.

Educate yourself daily and polish your skills

Listen to podcasts like HousingWire Daily, New Home Insights Podcast, Sales Gravy, and other content-rich, skill-building podcasts.

• Limit or eliminate your exposure to negative media sources. Be media-free except for your own curated collection of newsletters, podcasts, and books. Napoleon Hill talks about having a Mastermind. He states that this can be people alive or dead, through books, conversations, and clubs.

Schedule and stick to a productive and profit-driven daily schedule

Peter Drucker famously said, “Tell me what you value and I might believe you, but show me your calendar and your bank statement, and I’ll show you what you really value!”

• How you allocate your time and resources reflects your true priorities and productivity.

• If you haven’t scheduled proactive lead generation, you’re unlikely to do it. If you don’t have a reminder to follow up on all leads daily, you’ll forget to pursue them. If you don’t have an open house scheduled, you won’t be doing one this weekend!

• Don’t hit ‘save for later’ or ‘snooze’ your notifications. Do the task, be consistent and see the results!

Practice the previous seven skills weekly

This is why it’s called your real estate ‘practice.’ Practice isn’t a one-time dabble; it’s how you build your business through honing your skills and being proactive.

Our job is to educate you, motivate you, and get you into action. Your job is to be in action!

Tim and Julie Harris host the nation’s #1 podcast for real estate professionals in the US. New episodes premier every weekday. Tim and Julie have been real estate coaches for more than two  decades, coaching the top agents in the country through all types of markets.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this piece: [email protected]

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Today's mortgage rates fall for 15- and 30-year terms | June 3, 2024

Thinking about taking out a mortgage loan here are the current mortgage rates and the top factors that influence them..

Mortgage rates fluctuate almost daily based on economic conditions. Here are today’s mortgage rates and what you need to know about getting the best rate. ( iStock )

The interest rate on a 30-year fixed-rate mortgage is 6.990% as of June 3, which is 0.010 percentage points lower than Friday. Additionally, the interest rate on a 15-year fixed-rate mortgage is 6.125%, which is 0.250 percentage points lower than Friday. 

With mortgage rates changing daily, it’s a good idea to check today’s rate before applying for a loan. It’s also important to compare different lenders’ current interest rates, terms and fees to ensure you get the best deal. 

Rates last updated on June 3, 2024. Rates are based on the assumptions shown here . Actual rates may vary. Credible, a personal finance marketplace, has 5,000 Trustpilot reviews with an average star rating of 4.7 (out of a possible 5.0).

How do mortgage rates work?

What determines the mortgage rate.

• How to compare mortgage rates 
• Pros and cons of mortgages 

How to qualify for a mortgage

How to apply for a mortgage, how to refinance a mortgage.

• How to access your home’s equity

When you take out a mortgage loan to purchase a home, you’re borrowing money from a lender. In order for that lender to make a profit and reduce risk to itself, it will charge interest on the principal — that is, the amount you borrowed.

Expressed as a percentage, a mortgage interest rate is essentially the cost of borrowing money. It can vary based on several factors, such as your credit score , debt-to-income ratio (DTI), down payment , loan amount and repayment term.

After getting a mortgage, you’ll typically receive an amortization schedule , which shows your payment schedule over the life of the loan. It also indicates how much of each payment goes toward the principal balance versus the interest.

Near the beginning of the loan term, you’ll spend more money on interest and less on the principal balance. As you approach the end of the repayment term, you’ll pay more toward the principal and less toward interest.

Your mortgage interest rate can be either fixed or adjustable. With a fixed-rate mortgage, the rate will be consistent for the duration of the loan. With an adjustable-rate mortgage (ARM), the interest rate can fluctuate with the market.

Keep in mind that a mortgage’s interest rate is not the same as its annual percentage rate (APR). This is because an APR includes both the interest rate and any other lender fees or charges.

Mortgage rates change frequently — sometimes on a daily basis. Inflation plays a significant role in these fluctuations. Interest rates tend to rise in periods of high inflation, whereas they tend to drop or remain roughly the same in times of low inflation. Other factors, like the economic climate, demand and inventory can also impact the current average mortgage rates.

To find great mortgage rates, start by using Credible’s secured website, which can show you current mortgage rates from multiple lenders without affecting your credit score. You can also use Credible’s mortgage calculator to estimate your monthly mortgage payments.

Mortgage lenders typically determine the interest rate on a case-by-case basis. Generally, they reserve the lowest rates for low-risk borrowers — that is, those with a higher credit score, income and down payment amount. Here are some other personal factors that may determine your mortgage rate:

• Location of the home
• Price of the home
• Your credit score and credit history
• Loan type (e.g., conventional or FHA)
• Interest rate type (fixed or adjustable)
• Down payment amount
• Loan-to-value (LTV) ratio

Other indirect factors that may determine the mortgage rate include:

• Current economic conditions
• Rate of inflation
• Market conditions
• Housing construction supply, demand, and costs
• Consumer spending
• Stock market
• 10-year Treasury yields
• Federal Reserve policies
• Current employment rate

How to compare mortgage rates

Along with certain economic and personal factors, the lender you choose can also affect your mortgage rate. Some lenders have higher average mortgage rates than others, regardless of your credit or financial situation. That’s why it’s important to compare lenders and loan offers.

Here are some of the best ways to compare mortgage rates and ensure you get the best one:

• Shop around for lenders: Compare several lenders to find the best rates and lowest fees. Even if the rate is only lower by a few basis points, it could still save you thousands of dollars over the life of the loan.
• Get several loan estimates: A loan estimate comes with a more personalized rate and fees based on factors like income, employment, and the property’s location. Review and compare loan estimates from several lenders.
• Get pre-approved for a mortgage: Pre-approval doesn’t guarantee you’ll get a loan, but it can give you a better idea of what you qualify for and at what interest rate. You’ll need to complete an application and undergo a hard credit check.
• Consider a mortgage rate lock: A mortgage rate lock lets you lock in the current mortgage rate for a certain amount of time — often between 30 and 90 days. During this time, you can continue shopping around for a home without worrying about the rate changing.
• Choose between an adjustable- and fixed-rate mortgage: The interest rate type can affect how much you pay over time, so consider your options carefully.

One other way to compare mortgage rates is with a mortgage calculator. Use a calculator to determine your monthly payment amount and the total cost of the loan. Just remember, certain fees like homeowners insurance or taxes might not be included in the calculations.

Here’s a simple example of what a 15-year fixed-rate mortgage might look like versus a 30-year fixed-rate mortgage:

15-year fixed-rate

• Loan amount: $300,000
• Interest rate: 6.29%
• Monthly payment: $2,579
• Total interest charges: $164,186
• Total loan amount: $464,186

30-year fixed-rate

• Interest rate: 6.89%
• Monthly payment: $1,974
• Total interest charges: $410,566
• Total loan amount: $710,565

Pros and cons of mortgages

If you’re thinking about taking out a mortgage, here are some benefits to consider:

• Predictable monthly payments: Fixed-rate mortgage loans come with a set interest rate that doesn’t change over the life of the loan. This means more consistent monthly payments.
• Potentially low interest rates: With good credit and a high down payment, you could get a competitive interest rate. Adjustable-rate mortgages may also come with a lower initial interest rate than fixed-rate loans.
• Tax benefits: Having a mortgage could make you eligible for certain tax benefits, such as a mortgage interest deduction .
• Potential asset: Real estate is often considered an asset. As you pay down your loan, you can also build home equity, which you can use for other things like debt consolidation or home improvement projects.
• Credit score boost: With on-time payments, you can build your credit score.

And here are some of the biggest downsides of getting a mortgage:

• Expensive fees and interest: You could end up paying thousands of dollars in interest and other fees over the life of the loan. You will also be responsible for maintenance, property taxes , and homeowners insurance.
• Long-term debt: Taking out a mortgage is a major financial commitment. Typical loan terms are 10, 15, 20, and 30 years.
• Potential rate changes: If you get an adjustable rate , the interest rate could increase.

Requirements vary by lender, but here are the typical steps to qualify for a mortgage:

• Have steady employment and income: You’ll need to provide proof of income when applying for a home loan. This may include money from your regular job, alimony, military benefits, commissions, or Social Security payments. You may also need to provide proof of at least two years’ worth of employment at your current company.
• Review any assets: Lenders consider your assets when deciding whether to lend you money. Common assets include money in your bank account or investment accounts.
• Know your DTI: Your DTI is the percentage of your gross monthly income that goes toward your monthly debts — like installment loans, lines of credit, or rent. The lower your DTI, the better your approval odds.
• Check your credit score: To get the best mortgage rate possible, you’ll need to have good credit. However, each loan type has a different credit score requirement. For example, you’ll need a credit score of 580 or higher to qualify for an FHA loan with a 3.5% down payment.
• Know the property type: During the loan application process, you may need to specify whether the home you want to buy is your primary residence. Lenders often view a primary residence as less risky, so they may have more lenient requirements than if you were to get a secondary or investment property.
• Choose the loan type: Many types of mortgage loans exist, including conventional loans, VA loans , USDA loans , FHA loans , and jumbo loans. Consider your options and pick the best one for your needs.
• Prepare for upfront and closing costs: Depending on the loan type, you may need to make a down payment. The exact amount depends on the loan type and lender. A USDA loan, for example, has no minimum down payment requirement for eligible buyers. With a conventional loan, you’ll need to put down 20% to avoid private mortgage insurance (PMI). You may also be responsible for paying any closing costs when signing for the loan.

Here are the basic steps to apply for a mortgage , and what you can typically expect during the process:

• Choose a lender : Compare several lenders to see the types of loans they offer, their average mortgage rates, repayment terms, and fees. Also, check if they offer any down payment assistance programs or closing cost credits.
• Get pre-approved: Complete the pre-approval process to boost your chances of getting your dream home. You’ll need identifying documents, as well as documents verifying your employment, income, assets, and debts.
• Submit a formal application: Complete your chosen lender’s application process — either in person or online — and upload any required documents.
• Wait for the lender to process your loan: It can take some time for the lender to review your application and make a decision. In some cases, they may request additional information about your finances, assets, or liabilities. Provide this information as soon as possible to prevent delays.
• Complete the closing process: If approved for a loan, you’ll receive a closing disclosure with information about the loan and any closing costs. Review it, pay the down payment and closing costs, and sign the final loan documents. Some lenders have an online closing process, while others require you to go in person. If you are not approved, you can talk to your lender to get more information and determine how you can remedy any issues.

Refinancing your mortgage lets you trade your current loan for a new one. It does not mean taking out a second loan. You will also still be responsible for making payments on the refinanced loan.

You might want to refinance your mortgage if you:

• Want a lower interest rate or different rate type
• Are looking for a shorter repayment term so you can pay off the loan sooner
• Need a smaller monthly payment
• Want to remove the PMI from your loan
• Need to use the equity for things like home improvement or debt consolidation (cash-out refinancing)

The refinancing process is similar to the process you follow for the original loan. Here are the basic steps:

• Choose the type of refinancing you want.
• Compare lenders for the best rates.
• Complete the application process.
• Wait for the lender to review your application.
• Provide supporting documentation (if requested).
• Complete the home appraisal.
• Proceed to closing, review the loan documents, and pay any closing costs.

How to access your home’s equity 

If you need to tap into your home’s equity to pay off debt, fund a renovation, or cover an emergency expense, there are two popular options to choose from: a home equity loan and a home equity line of credit (HELOC) . Both a home equity loan and a HELOC allow you to borrow against your home’s equity but a home equity loan comes in the form of a lump sum payment and a HELOC is a revolving line of credit.

These two loan types have some other key similarities and differences in how they work:

What is a rate lock?

Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process .

What are mortgage points?

Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments. 

What are closing costs?

Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees , and application fees.

If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible's free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.