Advantages & Disadvantages of a Land Contract
You are in the market to buy a house but your wallet, credit score or the property don't meet traditional lending criteria. Another option for purchasing your dream home is to use a land contract agreement. However, there are some things to be aware of before signing the contract.
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Buyer
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A buyer who has less than perfect credit or lacks the appropriate funds for a traditional mortgage benefits from a land contract if the seller is less subjective than the finance companies. The disadvantage is that the seller can request a higher interest rate or selling price for carrying the mortgage. Another disadvantage is that foreclosure on a land contract processes more quickly than with a traditional mortgage.
Seller
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A land contract provides a steady income for the seller and also opens an outlet for a property that would not qualify for a conventional mortgage. The capital gains tax is paid on an installment sale and not all at once. The disadvantages to a land contract for the seller include being responsible for the property until the deed transfers. For instance, late tax fees or city ordinance violations fall on the shoulders of the seller.
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Considerations
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When negotiating a land contract sale, put everything in writing, from the taxes and insurance payments to the property amenities. If for some reason you must go to court, it will be harder to prove your case if the agreement is not in writing. As a buyer, you should require the land contract be registered at the local clerk of courts office. If you are a seller, require that the down payment be large enough to cover any repairs to the property if the buyer defaults on the contract.
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References
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