How to Refinance a Land Contract

Refinancing a land contract or agreement for deed, is fairly simple. A land contract operates just like an ordinary bank loan, except payments are made to a private individual or a group of people instead of a bank. By refinancing, the land contract is replaced by a bank loan and the seller of the property gets paid what he or she is owed on the agreement for deed. There are several things that must be done going into land contracts, in order for most banks to pay them off with new loans.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Copy of your original land contract
• Copy of recorded land contract
• Copies of mortgage payment checks

How to Refinance a Land Contract

1. Record the contract at your local Register of Deeds or County Clerk's office immediately if it hasn't been. Many banks will not consider your agreement for deed legitimate if it is not legally recorded. If you went through an official closing at a title company with a closing agent or an attorney, this was likely done for you. If your land contract was drafted between you and the seller only, one of you should have recorded it. Most banks like for a land contract to be recorded for at least six months before they will consider paying it off with a new loan. As many lenders have different guidelines, it is wise to contact your bank to determine what it will require in this area.

2. Locate your canceled mortgage checks. The best way to prove to your bank that you have been making payments to the seller is to provide them with canceled checks. If you don't have canceled checks, monthly bank statements showing your mortgage payments may be all you need, depending on what your bank requires. It some cases, a spreadsheet indicating your monthly mortgage payments may also suffice. Do not, especially if you plan to refinance your land contract, pay the seller in cash. It can be difficult to verify cash payments. The seller, however, will likely be required by the bank to complete a Verification of Mortgage. This form will indicate if you have made your monthly payments on time throughout the life of the contract. It also indicates your monthly payment amount.

3. Be sure your real estate taxes are paid-to-date. Any real estate taxes due at time of closing will have to be paid out of the proceeds of your new loan. Depending on your reasons for refinancing your land contract, this may eat up any cash you wish to take out of the property's equity. If your land contract payments included a monthly sum to pay your annual taxes; it is wise to contact the seller to make sure he or she has paid the real estate taxes with that portion of your payment.

4. Obtain an accurate payoff from the seller. Your new loan must be enough to cover what you currently owe on the property according to contract and the payoff. A land contract payoff is like any loan payoff. It simply is a breakdown of what you will owe the seller at closing. This includes current principal balance, interest and other fees that may be associated with the land contract. If you are uncertain as to what you may owe the seller or do not understand your payoff, your loan officer or processor will explain this to you.

5. Be prepared to have your home appraised. Almost all banks require appraisals on properties on which they lend. If you had your home appraised within the last year, the original appraisal may be sufficient. However, be prepared to have a new appraisal done. Depending your market, most real estate appraisals cost between $250 and $500.Note: If your bank allows you to use an existing real estate appraisal, the name of your new bank must be listed on the appraisal report. To ensure this is done, you must contact the appraiser who originally inspected your property and request that that the name of your new lender be added. Most appraisers will do this for free, however, some may charge a small fee.

6. Consult a experienced real estate attorney. If you did not hire an attorney to draft your land contract when you purchased your property, it is wise to hire one to do your closing. Your lawyer will also ensure that your payoff is correct and work closely with your loan officer to ensure everything works out equally fair for you and the seller.

Tips & Warnings

• Contact your seller and inform him or her that you plan to refinance. This will give them an opportunity to prepare figures and documents on their end.
• Contact your bank or mortgage company before attempting to refinance your land contract.
• You must qualify for a new bank loan according to your bank's guidelines. If you are experiencing problems qualifying for a new loan and your seller is requiring you to refinance out of your contract, it is wise to keep him or her advised of your issues.