Advantages of Land Contracts for the buyer: Buying property using a land contract may benefit you if you have a difficult time finding bank financing due to credit problems or have non-traditional income sources. In that case, without the use of a Land Contract, buying your home would be much more difficult. Won't your income and savings, crucial aspects of your financial status, and your ability to handle more debt (a mortgage loan) increase in the coming years? Of course they will! But a lender bases its decision on what you make NOW, and what you have saved NOW. Many individual sellers, on the other hand, will recognize that your financial future is indeed bright. Many of the usual closing costs are eliminated when you use a Land Contract to complete your real estate sales transaction. Purchasing a title insurance policy for the lender is not an applicable cost when there is no bank involvment in the transaction. Also, you probably don't need to pay for a new survey if you are buying a home in an established, platted subdivision. There is no need for an appraisal, either. You and the seller have already agreed upon the value of the home. Neither of you are concerned anymore about the prices that comparable homes have sold for in the area. The single biggest closing cost is usually the discount points charged by the bank to increase its yield, or its profit from the interest on the loan. You will not have this expense when you buy on a Land Contract. If the seller feels she needs a higher yield, she should have insisted on a higher interest rate when you were negotiating your purchase agreement. Advantages of Land Contracts for the seller: A Land Contract allows the seller to make additional money on the financing of the sale of their property, collecting not only the purchase amount but also the interest on the principal balance. By acting as the bank in the property transaction, she gets to make the profit as the bank "normally" would. Selling a home on Land Contract when you have an underlying mortgage loan is a time-honored method of profiting in the residential real estate market. The Land Contract payment will usually far exceed the mortgage loan payment amount, due to appreciation. When a home is sold using a Land Contract, the seller retains ownership rights. She can pledge the equity in the home as collateral, or even get a bank loan in the amount of the principal balance. There are considerable advantages of land contracts for both the buyer and seller when a Land Contract is used to convey the property. Another factor that can benefit both buyer and seller is the fact that the sale can be closed tremendously faster. It is not unusual for a Land Contract transaction to be closed within a few weeks of the final signing of the sales agreement. Paul Anderberg |
