Land Contracts. A Good Deal or a Potential Disaster?

By
Real Estate Agent with Remerica Integrity, Realtors®, Northville, MI
http://actvra.in/CVb

Land Contracts. A Good Deal or a Potential Disaster?

While buying a house on Land Contract sounds like a great idea, here are a few potential pitfalls to think about:

There are a few things to consider before going after a land contract home.

First, they usually require a 20% down payment or more. Most of the time, the lack of funds is the reason that you can't get a mortgage in the first place. The homeowner will require a credit check, references, W-2's, etc, just like a mortgage company would. So, if you've recently had a bankruptcy or foreclosure, it's going to be extremely hard for the seller to take a risk on you.

Second, will you keep second guessing your decision? It's not like renting. If you leave, you'll be out the monthly payments, your substantial down payment and could be sued by the original owner for not purchasing, because you already have a legal contract in place.

Third, what if the original owner stops making payments and your "new house" gets forecloses on? The bank/investor who holds the mortgage on the property doesn't care that you've been making payments to the owner, they just know that they weren't getting them. After the third missed payment, the foreclosure process starts. The only way to save the house after that is to pay the entire loan off before the redemption period is over.

"Land Contract" seems to be the latest buzz-word. If you want to buy a house, give me a call or send an email and we can talk. I have a few lenders that can check your credit and if it's not up to par, they'll let you know what to do to get your scores up in the least amount of time so you can buy a house as soon as possible. If you still want to buy a house on Land Contract, we can work with you on that, too.

*This is a partial list of things that could go wrong with a Land Contract. There are also way to ensure that you don't go through these. Contact me and we can discuss this in more detail.

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  1. Debbie Reynolds 06/24/2012 12:23 PM
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Todd Clark
Broker - Beaverton, Oregon Real Estate Expert - (503) 524-9494
Keller Williams Realty

All things that are true, but there are way to protect yourself. Use a 3rd party escrow company that pays the underlying mortgage and taxes first, then remaining money goes to the seller. Two, make sure you record the sale with the county and get the title put in your name. (Most people can't sell on contact if they don't have the mortgage paid off - Mortgage company wants to be paid off "Due on Sale"

The owners I deal with on these types of sales, really don't care what type of credit you have if you can come up with the down payment. They know they get the 20% down and the home back if you stop paying.

Also, this can be great for you the real estate agent as it puts sales in your pocket from people that can't qualify with the banks.

June 24, 2012 07:05 AM
Rainmaker
932,041
Greg Nino
Houston, Texas
RE/MAX Compass, formerly RE/MAX WHP

Hey Eric,

 

Good stuff. A lot of borrowers/buyers in this situation also don't realize they have to pay a higher interest rate. Here it's about 6%.

June 24, 2012 07:18 AM
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Debbie Reynolds
Your Dedicated Clarksville TN Real Estate Agent
Prudential PenFed Realty, "The Real Debbie Reynolds" Your Clarksville Real Estate Professional, 931-920-6730

Eric, This is a great blog with valuable information. In fact I am going to reblog it. Thanks.

June 24, 2012 12:17 PM
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Cindy Marchant
"in Indy" , Realtor, Fishers Real Estate
Keller Williams Indy NE 317-290-7775 www.marchantteam.com

Land Contracts are becoming popular here in Indy as well...but our attorney advised that the seller's mortgage can be "called" if they sell on land contract so many of our sellers won't take that risk.

June 25, 2012 04:57 AM
Rainmaker
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Eric Michael
Metro Detroit Real Estate Professional 734.564.1519
Remerica Integrity, Realtors®, Northville, MI

Thanks for all the comments.

The one thing I wish I would've mentioned in the initial post is what Todd Clark brought up. Most mortgages have a "Due on Sale" clause, meaning that if the owner has a mortgage, and they "sell" the house on land contract, the mortgage company wants ALL their money right then.

July 11, 2012 03:32 PM
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Eric Michael

Metro Detroit Real Estate Professional 734.564.1519
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