Under a land contract, the buyer does become the owner once the land contract is signed. Articles of agreement for warranty deed.A land contract is an agreement to purchase, whereas a lease or rent option is not. Types of ContractsĪ land contract may sound similar to a lease with an option to buy (purchase option) or rent-to-own agreement, but it’s not the same thing. But first, it’s important to understand the types of land contracts. This, combined with a contract (that may not spell out everything listed above), is why many buyers get fleeced in land contract deals. The seller holds the legal title until the buyer pays off the property. It’s important to note that the seller can also be called a vendor, and the buyer can be called the vendee. The buyer also gets the right to occupy and improve the property. These documents protect the buyer by allowing them to accumulate equity in the property and by preventing the seller from taking out new loans against the property or selling the property to anyone else. A requirement that the seller legally record the agreementĪfter both parties sign the contract, the buyer gets an equitable title or a general warranty deed.A requirement that the seller provide evidence of title.Who is responsible for maintenance, repairs, taxes and insurance.How much time the buyer has to catch up on a late payment.How the seller will penalize the buyer for late payments.Whether the loan has a prepayment penalty (a fee for paying off the loan early).Whether the buyer must make a balloon payment (a lump sum to pay off the remaining principal at the end of the loan term).Whether the property has any liens against it (for a mortgage or unpaid taxes).Payment schedule (including an amortization schedule that shows how much of each payment goes to principal and how much goes to interest).Names and addresses of the buyer and seller.The laws governing land contracts vary by state, but here’s how a land contract is generally supposed to work.Ī buyer and seller draw up a contract that includes the following information: You should be keenly aware of this context if you’re thinking about entering into a land contract.
But they do have a decades-long history of being more advantageous for sellers than buyers and have been used for discriminatory practices. Land contracts don’t have to be a bad deal for buyers. The buyer often unknowingly sacrifices the legal protections they’d get with a rental agreement or mortgage finances. Instead, they’ll get paid over time-if the buyer makes all the payments.
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The seller won’t get paid in full when the deal closes, like they would if the buyer got a mortgage or paid cash.
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It’s often a contract to buy a house plus the land under and around it.īoth parties make compromises under a land contract. Despite its name, a land contract isn’t necessarily an agreement to purchase a vacant parcel (though it can be). What Is a Land Contract?Ī land contract is a legal agreement where the owner finances the buyer’s purchase of a piece of real estate. It can also be a way for a seller to expand the pool of potential buyers to include people who might not qualify for a traditional or government-backed home loan. For the owner, it’s a way to sell property a bank may not want to finance. For the buyer, a land contract is an alternative to getting a mortgage or paying cash to buy a home.
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