Land Contracts Explanation

How Does A Land Contract and Lease Purchase Work?

A Land Contract offers an alternative to traditional bank financing. With a Land Contract the seller is the bank for a predetermined amount of time, usually 1-3 years with the balance due at the end of this period.  Paying off the seller at the pre-determined time is referred to as a refinance, since the seller is the first loan institution that you pay your mortgage to on a monthly basis. This payment is comprised of principal and interest which is based on an amortized period of usually 30 years but can vary. It is best for both parties to the Land Contract to have taxes and insurance included in the monthly payment. An amortization chart is included as part of the real estate transaction so the buyer and seller can see what the balance of the loan is after each payment is made. There are several points to the negotiating of a land contract, and it is important to choose a Realtor that has experience specifically in this area. After negotiations, the closing of a Land contract should ALWAYS be handled by a real estate attorney. The law states that a Land Contract must be recorded at the court house within 20 days of execution.

What are the benefits of a land contract for you?
1. You as the buyer get the interest deduction since technically you own the house. This is a huge benefit over a lease, lease purchase, or renting.
2. This method of purchase allows the purchaser to sell the home at anytime keeping any accumulated equity and their original down payment.
3. The value of the home most likely will increase because as the market improves, the value goes up. This makes the loan to value more favorable at the time of the bank refinance. Paying off the seller at the predetermined time is often referred to as a refinance since the seller is the first loan institution on the house.
4. Ownership begins at the execution of the land contract.

If you think a Land Contract or Lease Purchase might meet your needs, I would be happy to assist you in determining your best course of action. I sometimes find bank financing from the start eliminating the need for seller financing.

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