Refinancing Land Contract Homes To Government Or Conventional Loans

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This BLOG On Refinancing Land Contract Homes To Government Or Conventional Loans Was PUBLISHED On April 17th, 2019

There are factors to address when Refinancing Land Contract Homes To Government And Conventional Loans.

  • In today’s crazy mortgage market, more and more Americans are purchasing homes with a land contract
  • This is an alternative to traditional mortgage financing that can be confusing to understand
  • Since Gustan Cho Associates at Loan Cabin are experiencing more and more clients reaching out to us to refinance their land contract into a traditional mortgage, we figured we would write an article on this topic

In this article, we will detail the basics of a land contract, some rules to follow, and how to refinance into a traditional mortgage product.

Basics Of Land Contracts

Before we go any further, it is important to understand the basics of a land contract.

  • A land contract is a written contract used to purchase real estate such as a vacant lot, a home, or even in an apartment building
  • You may use a land contract to purchase any type of real property
  • The basics of a land contract are simple
  • A land contract is a form of seller financing. It is similar to your everyday mortgage, but rather than borrowing money from a lender or bank, the buyer makes payments to the current owner of the property
  • These payments must be made until the purchase price is paid in full or the balloon payment is due
  • Why use a land contract?
  • There can be benefits to both the buyer and seller when utilizing a land contract
  • For the buyer, they may not qualify for a traditional mortgage product because of credit issues or down payment issues
  • A land contract will allow you can buy the property by making direct payments to the seller

As the seller, since you will not receive the full purchase price up front like a regular mortgage transaction, the seller may be able to negotiate a higher sales price and receive installments until paid in full, creating a long-term revenue stream.

Factors To Address When Refinancing Land Contract Homes To Government And Conventional Loans

Some important rules to follow regarding land contract:

It can be unclear when the buyer will become the new owner of the property.

  • When the buyer is making payments to the seller, the buyer is then considered to have an “equitable title” to the property
  • At this point, the seller can no longer sell the property to another buyer
  • The legal title will remain with the seller until the payments are complete
  • Once paid in full the title is deeded over to the buyer. It is incredibly important to add yourself to the title with a quit claim deed when executing the land contract if you plan on refinancing the mortgage before it is paid in full. You must be on the title for a minimum of six months before you are eligible to refinance the property. This six-month seasoning requirement starts on the date the county record the title

We have run into many issues where the buyer is not on the title to the property, so they cannot refinance. This can create headaches down the road.

What Are The Consequences When You Stop Making On A Land Contract Home

What happens when you stop making payments?

  • If you stop making payments on your land contract, this will result in a default
  • Similar to foreclosure for a regular mortgage, forfeiture will result in the buyer giving up all monies paid to the seller for the property under the land contract
  • In more simple terms, you are out all the money you invested in the land contract
  • It is important to factor in monthly bills and emergency expenses before settling on a payment for the land contract

Since there will be less documentation involved in a transaction and no Debt to Income verification, you MUST stay within a comfortable financial situation for you and your family.

Steps In Refinancing Land Contract Homes To Government And Conventional Loans

What are the steps to take if you would like to refinance out of your land contract?

Refinancing out of the land contract can be confusing. In fact, many mortgage companies will not complete this transaction due to their lender overlays. For more information please see our blog on LENDER OVERLAYS. As mentioned above, the most important rule to follow in order to refinance the land contract is; you must be added to the title with the county. Your name must be recorded on the title for a minimum of 180 days or 6 months. This will be done with a quit claim deed. Assuming you have been on the title for at least six months, the refinance process is very similar to refinancing a standard mortgage loan. First, you will need to gather the documentation below:

  • Driver’s License
  • Last 30 Days of Pay Stubs
  • Last Two Years Tax Returns
  • Last Two Years W2 or 1099s
  • Land Contract
  • Owner’s contact information
  • Homeowners Insurance Policy

From there please call Mike Gracz on 630-659-7644 or text us for faster response. Or email Mike at mgracz@gustancho.com. Either Mike or one of his highly-skilled loan officers will assist you with the refinance. Once we have your application, we will order your appraisal and contact the owner of the property for an exact payoff. Other than that, the process is just about the same as refinancing a regular mortgage. We are experts in helping Refinancing Land Contract Homes.

Loan Programs Refinancing Land Contract HomesThat Benefit Borrowers

When refinancing out of a land contract, you may use any loan program such as a conventional loan, FHA loan, VA loan, or even a USDA loan. If the balance is higher than these loans allow, you may use a jumbo mortgage to refinance the land contract.

Since a land contract may be your only option to purchase a home, it is important to contact a real estate attorney before entering the agreement. You will want to verify the contract follows all state regulations. The attorney will protect you long-term against any violations to your land contract. Since these are unregulated you need somebody in your corner to make sure things are going smoothly. While this may add cost to the transaction we highly recommend using a real estate attorney.

Gustan Cho Associates at Loan Cabin are direct lenders without ANY LENDER OVERLAYS. Since lender overlays do not get in our way, we are able to help more families than most mortgage lenders. Whether you have been turned down before or not getting the service you deserve, please reach out to us for help. We are available 7 days week mornings and evenings. If you have any doubts about our company, please check out our reviews. We strive on being up to date on all mortgage guidelines and offer the best customer service in the business.

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