Land Contracts vs. Homeowners Mortgages

by admin on May 17, 2011

Land Contract or Contract for Deed

A Land Contract, also known as a Contract for Deed, is a seller-financing arrangement which is most typically referred to as a Lease Purchase. In this type of financing arrangement, the seller continues to hold title to the property, but the buyer will hold a contract in place of the deed (this is where the term contract for deed and land contract come from). Under this arrangement, once the contract terms are fulfilled (final payment term is made), the buyer will receive the equitable title, or deed for the property. There are many ways to structure a land contract and these terms should always be included in the contract:

  • Monthly Note with Balloon – Under this agreement, the buyer will typically make payments at a predetermined interest rate for a certain period of time that can range from only a few months to many years. The “balloon” payment is due at the completion of contract. This is the most typical contract and is typically 3-5 years. If, at the time of the balloon, the buyer is not able to pay it off, there may be a clause in the contract to extend or modify the existing agreement. The most common way a buyer pays the balloon is by refinancing with a mortgage lender.
  • Monthly note with no balloon – this is more of a mortgage type contract which is typically much longer and may range from 10-30 years. The seller is ultimately acting as the bank and is completely financing the deal for the life of the loan or at some point which the buyer wishes to get a new loan (or is capable of doing so)


Homeowners Mortgages

There are many types of mortgages available, both conforming and non-conforming loans. With recent mortgage changes, non-conforming loans are much harder to come by, which is typically a non-issue for most buyers. A conforming loan just means that it “conforms” to government guidelines. Such loans include:

  • Conventional – these loans are your “typical” bank loans
  • FHA – Federal Housing Authority loans which offer decreased down payment amounts
  • VA – Veterans Administration for qualifying members of the armed forces and certain other US Government jobs
  • USDA – United States Department of Agriculture offers loans for purchases in rural areas

There are many other loan programs and it is best to talk with a lender for your specific needs. Contact me and I will put you in contact with someone to help with your mortgage needs.

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