This Article Is About How To Structure Home Purchase With Land Contract
Home purchase with land contract is when a home buyer purchases a home from a seller and the seller offers the financing instead of a bank or mortgage company. Most folks who are home buyers normally go through a lender such as a bank, credit union, mortgage banker, or mortgage broker to secure their mortgage. However, there are situations where the home buyer may be qualified but may not be able to qualify for a traditional mortgage loan. Home purchase with the land contract may be the best option. In this article, we will cover and discuss buying a home under a land contract.
Reasons Why Home Buyers May Not Qualify For Mortgage
There are many reasons why a home buyer may not qualify for a traditional mortgage:
- A home buyer may be qualified in terms of being able to afford the down payment and monthly mortgage payments but may have issues that traditional mortgage lenders may not be able to get qualified
- One of the biggest reasons why a home buyer may not qualify for a mortgage by a mortgage lender is if the home buyer has a recent bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale
- There are federal mortgage guidelines that require minimum waiting periods after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale
- For FHA Loans, a home buyer needs to wait 2 years after Chapter 7 bankruptcy discharge in order to qualify
- The waiting period is 3 years after a foreclosure, deed in lieu of foreclosure, and short sale
- Those home buyers who have recovered from a deed in lieu of foreclosure, foreclosure, short sale, and bankruptcy prior to the mandatory waiting period is over cannot qualify for a mortgage until they have passed the waiting period
- However, homebuyers can purchase a home from a seller who is willing to sell their property via a land contract
Land contract real estate transactions can be a win-win situation for both buyers and sellers if it is structured right.
Home Purchase With Land Contract For Buyers With Bad Credit
Home purchase with land contract can provide many benefits for homebuyers who have bad credit or low credit scores or even not declaring much income. Home purchase with land contract will give buyers some time to fix their credit time to declare enough income on their tax returns so they can qualify for a traditional mortgage loan. There are other reasons why a home buyer cannot qualify for a home loan from a mortgage lender. It can be where the home buyer does not have good credit. It may need time to get their credit repaired and credit scores higher.
Other reasons might be that the home buyer makes cash income and has no documented income. Borrowers may need time to have documented income seasoned so he or she can qualify for a mortgage loan. Another issue may be that the home buyer is in the process of a divorce. Most mortgage lenders want a divorce to finalize before they will issue a clear to close. Other issues are when a home buyer does not have the necessary down payment and closing costs required in order to get a traditional mortgage. By buying a home via land contract, the seller and buyer can negotiate a smaller down payment and take monthly payments for the down payment.
Advantages For Home Seller With Land Contract Home Sales
There are many advantages for a home seller to sell their property via land contract during tough real estate markets or when there are many homes in the market. A home seller who is willing to sell their property via land contract normally can get a higher price. Land contract home buyers are not normally picky. Most of them will not try to nickel and dime sellers on the asking price.
There are many qualified homebuyers who cannot qualify for a traditional mortgage loan from a bank, credit union, or mortgage company. This is because they need time re-establishing their credit or they might need to meet the mandatory waiting period requirements after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale.
Home sellers that need repairs on their homes where an appraisal cannot meet the minimum condition requirements for someone to qualify for a mortgage can sell their home via land contract. They can have the home buyer do the work. The seller and buyer of the land contract purchase will negotiate a purchase price with a set interest rate and a term. An exit will be discussed and worked on by the home buyer. Home Purchase With Land Contract are not long-term loans. They are bridge loans or often called a band-aid loans until the home buyer has time to prepare for an end loan. Once the contract homebuyer qualifies for a traditional loan they can pay the land contract home sellers.
Risks On Land Contract Sales To Home Buyers
Most land contract home sellers do not own their homes free and clear. They still have a mortgage with a mortgage lender.
When buyers make land contract monthly housing payments, the land contract home seller deposits check in their bank account and in turn makes their mortgage payment to their mortgage company.
In the event, if the land contract home seller takes monthly housing payments and does not make their home mortgage payment, the home can get foreclosed. The land contract home buyer is out of luck. That is why it is strongly recommended that the land contract home buyer protect their interest. It is strongly advised that both parties have real estate attorneys experienced in land contract transactions represent them.
Risk Factors With Land Contract Real Estate Transactions
Real estate values change over time. Home prices do not always go up. As many of us experienced, nobody knew that real estate values will collapse as they did with the real estate market meltdown of 2008. With a land contract, there is a date where the land contract home buyer needs to pay off the balance of the land contract note in full. Most land contract finance agreements are due in 24 to 48 months.
What happens if the housing values collapse when it comes to refinancing the land contract balloon note into a regular mortgage loan?
- On the positive side to the land contract home buyer, the real estate can also appreciate and appreciate double digits in many cases
- These are considerations that both the land contract seller and buyer need to discuss and put in writing. In the case of a major real estate depreciation, an extension can be requested
Again, it is highly recommended that both buyers and sellers have experienced real estate attorneys represent them on land contract transactions.
Options For Home Buyers With NON-QM Loans
Gustan Cho Associates are experts in non-QM loans and bank statement self-employed borrowers. There is no waiting period after the housing event to qualify for mortgages with non-QM loans. Self-employed borrowers do not have to provide income tax returns on bank statement mortgage loans for self-employed borrowers. There are no loan limits with non-QM home loans and bank statement loans. A down payment of 10% to 30% is required. The amount of down payment depends on the borrower’s credit scores. NON-QM Loans and Bank Statement Loans allow up to 50% debt to income ratios. There is no private mortgage insurance required with non-QM loans and bank statement loans. For more information on non-QM mortgages, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at firstname.lastname@example.org.