In the current economic climate that is marked by the housing crisis, home buyers and sellers have found themselves seeking creative ways of financing a new home. With more stringent requirements on traditional mortgages, many buyers are finding it difficult to get approved for one reason or another and turning to land contracts as a viable options. This option works for some, but there are a few land contract disadvantages that a home buyer must consider before signing on a deal.
An Equitable Title
When you purchase your home using a traditional mortgage loan, you receive the deed to the property upon closing. Despite the fact that you are paying your lender over a period of time, the home is in your name and you are the owner. One of the primary land contract disadvantages is that the seller retains the deed until your home is paid off. You will receive an equitable title which shows only that you own a legal interest in your home. This becomes a real disadvantage when you are seeking permits to do home improvements or make repairs.
It is very important to consider all details when signing a land contract. Mortgage loans are strictly regulated by the government, but land contracts are not. At the top of the list of land contract disadvantages is that your rights are only protected to the extent that the contract allows. In other words, unless otherwise stipulated, your seller can choose to evict due to a single late payment, or he may feel justified to enter and inspect the property at will. To avoid these land contract disadvantages, be sure to have the paperwork read over and approved by your own real estate lawyer to ensure that your interests are protected.
No Option to Save Money
When you purchase your home with a traditional mortgage loan, your interest is based on the length of time it takes to pay back the loan. Therefore, you have the option to save money over time by paying it back more quickly; you can make extra payments or larger payments. Unless you make special concessions in your agreement, you may find yourself dealing with land contract disadvantages that do not allow you to pay your loan early, meaning that you cannot shave off the expense of your loan interest, and also that you cannot receive the deed to the house sooner than originally planned.
A Viable Option
With all this said, a land contract may be the best viable option for some home buyers. Certainly, it can help a family buy a house who otherwise would not be able to. However, it is necessary to understand all of the potential land contract disadvantages in order to protect yourself and your personal interests. It is wise to consult a real estate lawyer who specializes in land contracts to help you go over the agreement before signing it. Asking the right questions upfront can prevent a wide range of land contract disadvantages in the long run.
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