How to go from contract to proper mortgage?

There are two ways to finance your home:

As a refinance ...

No you don't have to pay another down-payment as long as the value is right. You will be refinancing your contract just as if it were a bank loan. You can refinance the balance owed up to 96.5% of the appraised value whenever you qualify (on an FHA loan ... 95% on a conventional loan).

If your home's value allows you to finance at 80% of the value (to pay off the balance of the contract), you can eliminate monthly private mortgage insurance costs entirely (equivalent to 1/2 to 3/4 of a percent of the loan amount).
 
Here are a few things you need to do:

1.) You need to pay with a checking account to provide cancelled checks as evidence that you paid the payments and on time.

2.) Is the contract recorded? If not, get it recorded. If the seller will not allow this, get it at least notorized.

3.) Make sure to begin now in updating your credit report, correcting errors, paying off delinquent debt, and establishing credit and a payment history. (You can work with a mortgage lender to assist you who would help you obtain a future loan.)

You could also treat the transaction as a purchase:

You can create a purchase agreement showing your down-payment previously paid (keep the proof ... hopefully, it was a check; if it was a money order or certified check, keep the copy), and the contract can be part of the agreement.

You can then treat the transaction as a purchase with a deferred closing date (your future closing date ... whenever that may be), but with your down-payment paid previously ... since you paid 5% and you only need 3.5% for an FHA loan, you could use the other 1.5% as a credit toward your financing settlement costs.

Any principal you paid (that can be verified) will also be credited toward your settlement costs; and if the total exceeds the required funds at closing, you would get cash back!

Repairs and renovations you paid for are considered principal payments only if you get a credit toward the purchase price or contract balance by the seller (if you are treating the transaction as a purchase when you finance it later). It should improve the value which would help if you finance as a refinance later however.

Hope this helps!

It helps immensely. Thank you!

Depending on what your home is currently worth, an FHA mortgage will likely be the best option.

A contract refinance isn't much different from a standard refinance -- we've done a lot of them at our office.

If you need any help running the numbers, I'd be happy to help out.  If I were in your position of being able to refinance now or in 2012, I'd crunch the numbers today to see if you can get into a favorable program.  If the numbers don't work out you wouldn't be out anything other than your time (it doesn't cost anything to run the numbers).

Let me know if I can help!