Land Contract
Land Contract
An alternative to a
non-conforming loan is the use of a land contract, which is allowed in
some states. A land contract is an agreement between a buyer and a
seller, where the buyer agrees to make periodic payments to the seller.
The title to the property only transfers to the land contract buyer on
fulfillment of the land contract obligations.
A land contract can be helpful for those who need time to establish
or improve their credit rating. There are only small closing costs, and
payment can help establish a good mortgage payment record. This can
help establish an overall good credit rating, and it is possible for
the buyer to later refinance the land contract with a conforming loan.
On the other hand, there are risks associated with land contracts.
Land contract purchases are not necessarily recorded in the public
record, and there are no guarantees that the seller will be able to
transfer a clear title to the buyer upon fulfillment of the land
contract. There also is no lender assuring that the purchase price for
the property is justified, and no inspection of the property's
condition.
Another alternative to a non-conforming loan is assuming the
seller's mortgage. By assuming a mortgage, if the mortgage is
assumable, it is possible to save on closing costs, and may allow you
to obtain a favorable interest rate.
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