What are the pros and cons of a land contract?

Learn about land contracts, and the pros and cons they offer both buyers and sellers in real estate transactions.

A mortgage isn’t the only way to purchase property. Land contracts are a great way to purchase land, a house, or commercial property without a lender.

The advantages and disadvantages of a land contract.

A land contract is like a mortgage, but instead of using a lender, the seller finances the buyer. The buyer takes over property management and makes payments to the seller until they reach the purchase price.

You may find it easier to finance with a land contract, but you may find that you’re offered a higher interest rate as well.

Let’s explore additional land contract pros and cons.

Land contract pros.

Whether you’re the buyer or the seller, land contracts offer several benefits:

• Easier to get financing — Since there aren’t any lenders, land contracts allow buyers to get financing even if they’re unable to get a traditional loan.
• Great for sellers — The seller sells their property and gets a steady income stream for the contract’s term. If the buyer doesn’t make payments, they can take the property back based on the contract terms.
• Afford more expensive property — Buyers may be able to purchase property that costs more than they’d qualify for with a traditional loan.

Land contract cons.

There are also a few potential disadvantages you should consider before entering into a land contract:

• No contract standards — Land contracts can include whatever the two parties decide. Before you enter into a land contract, make sure you understand the terms, whether the terms can change, and the responsibilities of each party.
• Higher interest rates — Since the seller is taking most of the risk, they may insist on a higher interest rate than a traditional mortgage.
• Ownership is unclear — The seller retains the property title until the land contract is paid in full. This may pose some issues about who actually owns the property during any legal disputes or insurance claims.

Land contracts are legally enforceable contracts and require both parties’ signatures to be official. To save time and energy, sign land contracts remotely using software like Acrobat Sign.

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