land contract

[amarowsky]

ANyone have experience with l land contract deals? I'm familiar with the basis, but I'm wondering with this 40 k house my neighbor has for sale. I'm wondering if I go directly to him if I could save us both money by not going through a realtor. How would that work if he agreed to do it? Would a bank and lawyer have to be involved or just one or the other?

[siggy_freud]

Depends on how you're paying for it. With cash, have a lawyer and/or realtor review the paperwork. If you're financing, the mortgage company and underwriter will make sure it's legit.

[amarowsky]

I would finance. Are there usual terms with a land contract? Like closing costs and sales concessions? Is there a usual amount required down and a limit on the length of the loan? I tried to read up on them but was struggling to find the perimeters.

[bjl584]

ANyone have experience with l land contract deals? I'm familiar with the basis, but I'm wondering with this 40 k house my neighbor has for sale. I'm wondering if I go directly to him if I could save us both money by not going through a realtor. How would that work if he agreed to do it? Would a bank and lawyer have to be involved or just one or the other?

If he already has it listed through a realtor it would be a breach of contract if he sold it to you without involving the real estate agency.

[Blessed]

My dad sold a few rental homes on his own with a land contract. He did it with long term tenants. It involved a lawyer for the paper work. The other person I know that sold on land contract had had their house on the market 22 months. Their was a nightmare btw having to evict and having 15K in damage.

Being the one selling your home on land contract can be risky to the seller. If your buyer defaults you have to fight them just like a foreclosure and pray you don't get back a trashed house. The big benefit to the seller is generally getting a higher interest rate than banks are offering. Generally from the down payment is a bit higher to make up for the risk the seller takes being the bank for you ( the buyer).

The last house we sold 2 of the 5 offers were from people wanting to land contract 2 % above the current rate home loans were going for. No way would I assume that risk with my paid for home. One offered 40% down and the other 25% down. I turned them down flat.W e had 3 other good offers the 1st week on market. However, I wondered what their credit problem was that they couldn't/ wouldn't get a traditional mortgage of 10-30 years with the low rates offered. I'm not saying this is your case at all but that it what I wondered in our situation.

To me the risk as a seller isn't worth it unless you know the person personally or you are desperate to sell and traditional mans haven't worked. I totally see the benefits to a buyer especially if they can't get a traditional mortgage.

Also if a property is not listed with an agent some agencies will do your land contract paperwork for a flat fee. The fee here with the agent I know that does it charges $1840. If the property had been listed the listing agent still get his/her commission no matter how the home is financed.

[Bob B.]

Let's be clear about what a land contract is - it's a contract between the seller and the buyer, where the seller offers the financing. No bank or mortgage company involved. The seller and the buyer agree to the terms. Down payment amount, financing period, interest rate, balloon payment (if applicable). It's my understanding that a seller cannot charge an unreasonably low interest rate (like if the transaction is between family members) or an unreasonably high interest rate. The seller retains legal title to the property until the contract is satisfied.

My understanding is that land contracts are attractive if the buyer and the seller both want to cut out bank/realtor fees OR if the buyer cannot qualify for commercial financing, and the seller trusts that the buyer will meet contract obligations. If the buyer does not meet contract obligations, the seller has rights to take back possession of the property.

Sometimes, the buyer and seller will enter into a land contract for 3-5 years, with, say a 15, 20, or 30 year amortization. At the end of the 3-5 year land contract, the buyer will be expected to get commercial financing to satisfy the remaining balance (balloon payment).

It can be an awful risk for a seller. But, again, if the contract terms are not satisfied, the buyer can take back possession. If I was a seller entering into a land contract, I would want to make sure there was a substantial down payment, and I would probably charge a bit higher interest rate than a commercial lender would. Otherwise, I would rather have the bank take the risk.

[amarowsky]

Well it sounds like I can't get a land contract from the current seller. I wonder if I could loan the money in full from my mom or grandparents, then offer to pay them back on a (5-10) land contract at like 4-6 % rate

[Blessed]

Have you checked to see if you qualify for a mortgage? The current rates are better than what you are thinking of borrowing from family. Also before considering home ownership do you have an emergency fund in case things go wrong or their is a job loss etc?

[amarowsky]

I have checked and I do qualify.it just seems like the only problem is possibly the underwriters. They (according to the loan officer I did my first mortgage with) may be nervous to give me a loan so close to my house on another property that is lower value than my current home. And the reason is it appears in most cases to look like I will be walking away from my current mortgage, as so so many have.

I explained that I was considering to fully rent out or sellmy current home so the loan would show intent to occupy on my new home purchase. I'm waiting on his reply but he said because my credit is great, my income to debt ratio is more than enough, and my house's value is more than both my loan amount and current principal, that the loan should not be a problem. I really hope this goes smoothly, I'd love to be able to help out my little brother and future nephew, as well as set up a potentially powerful passive investment income for my future. My gains in my emergency fund surplus have dropped a few percent in the past few weeks which doesn't worry me because it's only a few hundred bucks out of the 8 grand I invested. But I think if I can pull out while I'm still ahead and use this rate opportunity to turn it into a tangible asset, could really be more beneficial.

Thanks a bunch for all the comments so far guys and gals, it has been truly helpful in choosing my options.