by Sean McAlister

The Basics about Land Contracts

Land contracts are sometimes used by buyers who do not qualify for conventional mortgage loans offered by traditional lending institutional, for reasons of poor credit or an insufficient down payment. The legal status of land contracts varies from region to region. Typical land contracts are easy to understand and usually only make up 3-5 pages. Land contracts are common throughout the United States.

Buyers are less likely to walk away from a land contract or stop paying on the installment sale contract if the buyer has made a big down payment. Often times, home buyers are in a financial position to afford the monthly payments associated with home ownership, but they lack the down payment necessary to purchase a home. In those cases, it often makes sense for the buyers to consider purchasing a home or piece of real estate and have the owner/seller provide the financing for the purchase.


The owner-carried financing can include an existing mortgage balance or the property can be free and clear. Upon payment in full, the Vendor hands the Vendee a deed to the property. The basic difference between a land contract and a mortgage is the buyer does not receive a deed or clear title to the property until the land contract is paid off. The company can then make the tax payments to your property assessor and you can be assured the taxes will be paid on time. Consider including an acceleration clause in the contract, which will allow you to make the Vendee refinance the property if the condition of the property becomes a risk to your financial investment. This property may be improved or unimproved, vacant, or a home or a commercial building. With a land contract, a down payment is usually made, then equal monthly installments are paid until the property is paid for or until a balloon payment is required.


Likewise, selling a home by way a land contract can prove beneficial to the seller in many ways. In some states, they are called Trust Deeds, Contract for Deed, Deeds of Trust, Notes, or (privately held) Mortgages, but they all represent the same thing: a way of selling property where the buyer "borrows" from or relies upon the seller for the financing rather than paying cash up front or borrowing from a bank.

Land contracts vary widely from transaction to transaction. Land contracts are often misunderstood and are frequently avoided in favor of other less preferred ways of buying & selling real estate. I recommend the following information on Land contacts