June 20, 2012

Pro's and Con's of Purchasing on a Land Contract

When deciding on whether you want to buy a house on a land contract, you should weigh out all the pros and the cons. Making a list of the positives and the negatives will help you make the right and the best decision.

What is a Land Contract and is this the best option for you? In today's market, it would make sense that someone who wants to avoid the hassle of selling would opt to do a land contract. Typically, a seller must be in a very good financial position to be able to offer to do this, as many banks won't allow it on their existing mortgages.

A land contract is an agreement between a buyer and a seller for the purchase of property at a set price. The buyer and seller agree to the purchase price, down payment and monthly payments, with the seller essentially giving a loan to the buyer.

Pro's - Financing
A land contract allows a buyer who is not able to secure traditional financing to purchase real estate, and the buyer has time to to work on any credit issue that they may have. This also allows the buyer time to save up for a large sum of the down payment.
Pro's- Win for all
The owner is still allowed to collect rent on the property for a number of set years, and than can sell it at a fixed price. If the buyer does not make the payments on the house, the owner has the right to evict the tenant and take all possesion back.
Pro's-Tight Market
This would allow  for the potential buyer to be able to purchase when the interest rates are high and there are fewer buyers in the market. A land contract can attract buyers who would not normally have been able to purchase the property. If the buyer's credit is weak, this allows them to be able to work on building up better credit.

Con's-Contract Mistakes
A land contract has many concerns, 1. Which party is responsible for the maintenance? 2. Who is to carry the insurance on the house? 3. What losses there would be if the buyer decides not to purchase the property?

Con's- Making Alterations to the property
If the buyer wants to make alternations to the property, the owner may feel like he is stuck with completing all the repairs if the contact does not work out. This leaves both the owner as well as the buyer with frustration on what still needs to be completed on the property. Like everything else about a land contract, the issue of alterations to the home must be agreed upon in advance so that the seller is not left with a home that he will have to make major repairs to in order to put back on the market. This leaves the owner, in the end, with the final decisions.

In today's market, it would make sense that someone who wants to avoid the hassle of selling would opt to do a land contract.

1 comment:

  1. Easy to read, interesting and easy to understand. What more do you want from a topic-specific article? Thanks for sharing!
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