Land Contract

By Gustan Cho

Selling your home via land contract is another way of selling your home.  Land contracts are also known as contracts for deeds.  Land contracts is a form of seller financing a home buyer.  If you sell your home via land contract, the home buyer and yourself form a written agreement as to the terms of the sale such as the interest rate, the term of the loan, the sellers responsibilities, the buyers responsibilities, the exit strategy as of when the buyer is going to pay the full loan amount to the seller, and other terms agreed between both parties.  There are major advantages on real estate land contract sales for both the home buyer and home sellers.

Benefits Of Land Contracts

Sometimes a land contract is the only way to sell a home for a home seller if major repairs need to be done unless they get a cash buyer.  If major repairs needs to be done, there is no mortgage lender that will give a home buyer a mortgage unless the repairs has been done.  There are many home buyers who have the skills, knowledge, and time to buy a fixer upper and do the 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 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 a residential mortgage loan after the discharge date of a bankruptcy and there is a mandatory three year waiting period to qualify for a residential mortgage loan 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 through land contract until they pass the mandatory waiting period.  While waiting out the waiting period, they can work on re-establishing their credit so once their waiting period is up, they can secure a residential mortgage loan and refinance their home and pay off the land contract.

Closing On A 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 mortgage lender’s rigorous mortgage approval process.  The home buyer does not have give typical 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, and other documents required by the mortgage company to process and underwrite the mortgage loan.   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 and his or her 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 sell their homes 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 loan.

Sellers Advantage Of Land Contract Real Estate Sales

During depressed real estate markets, sellers who offer land contracts to home buyers have a major advantage over those sellers who do not.  Potential buyers who gravitate towards land contract homes are those who have had a prior bankruptcy or foreclosure 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 residential mortgage loan.  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, mortgage lenders have tough mortgage lending guidelines where they require mandatory waiting periods for those with a prior bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale.  Mortgage lenders also require that those home loan applicants have re-established credit for 12 to 24 months.  Land contract sellers can normally get higher prices for their homes because land contract home buyers are not knit pickers where they try to get the best deal.

Another advantage for a seller who offers a home buyer a land contract financing is when the seller’s home is in need of repairs and due to deferred maintenance the home will not pass appraisal inspection.  The land contract seller can require that the home buyer 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.  Land contract sales can be a win win situation for both the home buyer and home 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 home owners.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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