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What is land contract?
Or sometimes called ‘installment sale agreement’
is contract between of property seller and buyer of a real
estate in which buyer makes payments toward full ownership,
just like with mortgage. The title or is called ‘deed’
is held by the owner until all payments are made.
The sale price is paid in periodic installments, often with
so called ‘ballon payments’ at the end, to make
the time length of payments shorter then amortized loan
with a final payment.
A land contract can be thought of as a ‘lease with
an option to buy’. Some states have more generous
legal rights for land contract holders than others, so buyer
must be very careful to ensure that the terms of the contract
are legally binding so that there wouldn’t be any
problems in future if it comes to court.
There are five essential steps in Land contracts
you should follow:
Agree on a sales price for the property with financing
terms that provide a number of payments at start.
Realize that in a land contract, the buyer
receives the legal title or ‘deed’ to the property
only after the seller receives bigger part of the installment
payments.
Include a clause in the land contract
that allows you to prepay the contract amount without penalties,
this ensures you to pay off loan and get improvements to
property without risk.
If the seller does not agree to prepayment terms, you should
negotiate a clause that permits you (the buyer) to sell
lots while allowing the seller to release the land to the
lot buyers and accept the money from lot sales as installment
payments.
Review the terms of a land contract with
your agent or find real estate attorney before making or
accepting any offers, because experts will save you a lot
of time and money.
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