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Selling Home Via Land Contract For Buyers And Sellers

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Selling Home Via Land Contract For Buyers And Sellers

This BLOG On Selling Home Via Land Contract For Buyers And Sellers Was UPDATED On April 14th, 2019

By Gustan Cho

Selling home via land contract is another way of selling home.

  • Land contracts are also known as contracts for deeds
  • Land contracts is a form of seller financing a home buyer
  • Selling home via land contract, the home buyer and homeowners form a written agreement as to the terms of the sale such as the following:
    • interest rate
    • the term of the loan
    • sellers responsibilities
    • buyers responsibilities
    • exit strategy as of when the buyer is going to pay the full loan amount to the seller
    • other terms agreed between both parties
  • There are major advantages on selling home via land contract for both buyer and home sellers

Benefits Of Selling Home Via Land Contracts

Sometimes selling home via land contract is the only way to sell a home for homeowners if major repairs need to be done unless they get a cash buyer.

  • If major repairs need to be done, there is no lender that will give buyers a mortgage unless the repairs have been done
  • There are many home buyers who have the skills, knowledge, and time to buy a fixer upper
  • Many buyers are capable of doing work themselves
  • For home buyers who have recently filed bankruptcy or had a foreclosure, buying a home via a land contract is the only way to purchase a home due
  • This is due to the mandatory waiting period to qualify for a mortgage after a bankruptcy and foreclosure
  • There is a mandatory two-year waiting period to qualify for FHA Loans after the discharge date of Chapter 7 bankruptcy
  • There is a mandatory three-year waiting period to qualify for FHA Loans after a foreclosure, deed in lieu of foreclosure, and short sale
  • For home buyers who are ready to purchase a home after a bankruptcy or foreclosure now have an opportunity to buy a home that is selling via land contract
  • After they pass the mandatory waiting period, they can refinance their land contract loan to traditional financing
  • While waiting out the waiting period, they can work on re-establishing their credit
  • Once their waiting period is up, they can secure traditional government and/or conventional financing
  • They can refinance their home and pay off the land contract

Closing On Home Selling Via Land Contract

Closing a home on a land contract is much faster and quicker than traditional closings with no red tape.

  • When a home seller uses a land contract to sell their home, they do not have to wait for the home buyer to go through the lender’s rigorous mortgage approval process
  • The home buyer does not have to give typical mortgage docs
  • Lenders normally want the following:
    • 60 days bank statements
    • two years tax returns
    • letters of explanations on derogatory credit
    • bankruptcy paperwork
    • divorce paperwork
    • child support paperwork
    • verification of rent
    • verification of employment
    • other documents required to process and underwrite the mortgage
  • All the paperwork and documents needed are documents requested by the land contract home seller
  • The home seller should have a third party property management company
  • Sellers will have their attorney review the job security, credit history, and exit strategy of the home buyer before agreeing in executing the real estate land contract
  • Many home sellers who agree to selling home via land contract fully understand that the home buyer may have credit issues and need some time to correct those issues in order to qualify for a traditional mortgage

Sellers Advantage Of Selling Home Via Land Contract

During depressed real estate markets, sellers selling home via land contract to home buyers have a major advantage over those sellers who do not.

  • Potential buyers who gravitate towards land contract homes are those who are qualified
  • Land contract home buyers can afford it but do not quite qualify at a mortgage company
  • Home Buyers with a prior bankruptcy or foreclosure who do not meet the waiting period are some example of types of buyers who are interested in buying homes selling via land contract
  • Or those home buyers with less than perfect credit and need some time to re-establish their credit in order to qualify for a traditional mortgage
  • Due to the real estate and mortgage meltdown of 2008, many hard-working folks have lost their businesses as well as their jobs and have since recovered
  • However, lenders have tough mortgage guidelines where they require mandatory waiting periods for those with a prior bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale
  • Lenders also require borrowers re-established credit with seasoned credit tradelines for 12 to 24 months
  • Homeowners selling via land contract can normally get higher prices for their homes
  • This is because land contract home buyers are not knit pickers where they try to get the best deal

Selling Home Via Land Contract Needing Repairs

Another advantage for homeowners selling via land contract is when the seller’s home is in need of repairs and due to deferred maintenance, the home will not pass appraisal inspection. Many buyers are willing to purchase homes selling via land contract on an as-is condition and do the repairs themselves.

  • The selling via land contract can require home buyers to do the repairs and sell the home as is
  • The repairs need to be completed prior to the home buyer being able to apply for the end loan with a mortgage lender
  • Selling home via land contract can be a win-win situation for both buyers and sellers

Due Diligence

Both the home buyer and home seller need to protect their interest when entering into a land contract.

  • Each party should have a real estate attorney represent them
  • The buyer needs to make sure that the home they are buying through a land contract has no liens and that they have a fully legal iron clad purchase agreement
  • The seller needs to be protected and make sure that the home buyer insures the property and makes their payment on time and the consequences in the case of default
  • The seller needs to know how the home buyer is intending on exiting the land contract at a later date and the consequences and their legal right if they cannot get traditional financing
  • A mortgage loan originator should also be consulted to see the various options of exiting the land contract and getting approved for a residential mortgage loan at a later date
  • Most mortgage loan originators will work with people that do not quite qualify for a mortgage loan now but will qualify for a mortgage loan at a later date and will help the home loan applicant re-establish credit until they get fully qualified
  • I have cases where people who just filed bankruptcy and/or had a recent foreclosure contact me and our relationship starts the day they call me

I  have many mortgage loan clients who I have worked with over a year due to their credit issues and eventually got them approved for a residential mortgage loan and are now proud homeowners. Land Contracts can be a win-win situation for both buyers and home sellers if structured the right way.

Related> Pros and cons of selling a home on a land contract

Related> How to sell your home through a land contract

Related> Land contracts

Related> 10 Benefits of Selling on a Contract for Deed

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