When looking at homes for sale you may run across the terms, ‘land contract,’ and find yourself curious as to what this means exactly. If you’re looking to purchase a home you may be thinking which is better, a land contract or a mortgage. These are important questions and you should spend some time deciding which will be best for you and your current situation. No matter how a home is purchased it’s a big responsibility so shouldn’t be entered into lightly. There are ups and downs to each option and depending on your situation, one may be better for you.
What Is A Land Contract?
A land contract is different from a mortgage in the effect that the contract doesn’t involve a bank extending credit. The credit is held with the owner of the property. If they don’t have a mortgage on it they can sell it to a person for a decided upon down payment, monthly payments, interest and a final price. There are times this option won’t work for everyone because the down payment can be quite a bit higher than that of a traditional lender, keeping this route out or reach. There aren’t nearly as many properties out there that offer the option to purchase on a land contract so you’ll have to spend extra time searching for a suitable property that is sold this way.
If You’re The Seller
If you’re looking to sell your home and are unsure whether a land contract or a mortgage is best for your purchasers to go through you’re in a different position than if you’re purchasing. Here it’s a matter of safety. You want to make sure that you either get all the payments for your property or are easily able to get it back if they default. In this case forcing them to go through a mortgage can be the safest bet. The bank will settle with you and they’ll have to deal with collecting monthly payments on the property. A land contract will allow you to make extra money off the interest, but leaves you in a more vulnerable position if payments aren’t made. In some areas it can take longer to foreclose on a land contract than a mortgage also.
If You’re The Buyer
If you’re looking to purchase a home it can be very attractive to consider buying on a land contract. You’ll have a real person to deal with, you may not have to go through very much paperwork to get approved and occasionally you’ll have lower down payments, interest or no closing costs. While all this may seem very enticing you may still like to consider a mortgage. This is a less personalized deal, which can be a good thing at times. The lender you work with will have a very clear set of guidelines and won’t take your property back for one missed or late payment. Additionally they won’t be knocking at your door for their money. The bottom line is to consider a mortgage or land contract very carefully before entering into either one.