How to Purchase a Property With a Land Contract
A land contract is a purchase contract for a property in which the loan is held by the seller and all payments are made directly to the seller. The property transfers ownership to the buyer when the final payment--usually a larger balloon payment--is made. Land contracts are used when the buyer is unable to come up with a down payment or unable otherwise qualify for a typical, bank-funded loan. The process for handling land contracts is different in every state. Check your own state laws before entering into a land contract to purchase any property.
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Instructions
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Decide if a land contract is right for you. Purchasing a property this way does have disadvantages. The seller maintains the deed on the property until the buyer has paid in full. Missing a payment on your contract means the seller has the right to void the contract and consider all prior payments as rent.
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Consult your state laws. Some states provide protection for buyers when a majority of the payments are made. In addition, some states require that the land contract be recorded with the county, while others do not.
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Agree on terms with the seller. Determine a down payment amount, monthly payments and a final payment. Treat this purchase in the same way you would any other purchase of property. Include contingencies and other vital elements in the contract.
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Include a clause that requires the seller to pay off any existing mortgage on the property before you take ownership. If the seller defaults on an existing mortgage, the property may be subject to foreclosure and you may be required to pay off the existing mortgage in order to keep the property.
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Record the contract with the county. Not all states require that the contract be recorded. Legally, you have more protection if the sale is legally recorded.
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Tips & Warnings
The Internal Revenue Service considers a land contract to have all the benefits of home ownership. As a result, you can legally claim any interest paid to the seller on your income taxes. You are also legally able to rent the property and make improvements.
References
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Comments
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I have been in the mortgage business for 8+ years. I am very familliar with the mortgage process. If you have questions or concerns feel free to give me a call at 866-295-9339 x 777. Ryan Salo Bank Of England. FDIC, Equal Housing Lender.
