Land Contracts 101

Land Contracts 101Seller financing comes in all shapes and sizes, with land contracts being one of them. Essentially, a land contract is a unique form of seller financing where there is an agreement or contract between the seller and buyer regarding sales terms of the home. Terms of the contract can include the percentage of down payment, the price of the house, the length of the installment loan, and the buyer agreeing to it all.

The seller acts like a bank, lending the money to the seller with certain terms. Just as a buyer would make payments to a bank, the buyer would make payments to the seller. You may have heard various names for land contracts, including a land installment contract or a contract for deed.

When to use land contracts

You may wonder when a land contract would be beneficial to use as a real estate investor. This will depend on what your state laws are regarding eviction when someone is not making payments on that land contract.  If your state has favorable laws for eviction, then the eviction process will be simple. However, some states require a judicial foreclosure, which makes the eviction process much more challenging. In this case, it would be better to sell on a wrap over a land contract.

Benefits of Land Contracts

One positive feature of a land contract is that buyers who may not have the greatest credit can obtain financing from the seller, whereas they may have been turned down by the bank. They may have to undergo a credit check, but usually, the seller will allow a lower credit score than a bank.

Another benefit is that a seller may be able to sell their home faster for the price they want with a land contract, as opposed to putting it on the market to sell. There’s usually no need for an appraisal, there are no realtor fees, and the seller gets immediate cash flow. They’ll also be able to keep the title of the home until all the terms of the contract have been completed.

Put it in writing

A land contract should be in writing and terms should be stated very clearly. Be sure to indicate the exact plot of land being sold.  Be sure that both parties sign the contract. Most importantly, make sure and have everything reviewed by an attorney versed in local laws. Do what makes sense for your state.

 

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