|A Land Contract agreement or sometimes called ‘installment sale agreement’ is a contract between a property seller and a buyer of real estate in which the buyer makes payments toward full ownership, just like with mortgage. The paper which 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 an 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 the buyer must be very careful to ensure that the terms of the contract are legally binding so that there would not 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 a bigger part of the installment payments.Include a clause in the land contractthat allows you to prepay the contract amount without penalties, this ensures you can pay off the 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 the land contract with your agent and your real estate attorney before making or accepting any offers, because experts will save you a lot of time and money.
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