What Is a Land Contract?
A Land Contract is a legal agreement between a buyer and seller used to purchase real estate. A lot of Land Contracts are signed to buy not only land but also any piece of real estate with or without improvements, including vacant land for commercial use, a commercial building, a house, an apartment building, and others.
- Contract for Deed.
These contracts - not to be confused with Land Purchase Agreements - generally cover all the conditions of the bargain. They may include such aspects as the sales price, the number of monthly payments, the amount of down payment, the interest rate, and the duties of both parties. Select your state from the list below to download a printable template or use our online form builder to make your own Land Contract.
Land Contracts by State
Land Contract requirements differ by state. Though the contract is negotiable and many terms and conditions are established by the parties, the state often provides a standardized form that lays out a basic template for your agreement. Besides, local laws may define specific requirements. For instance, in Ohio you cannot sign a Land Contract on vacant land; in Florida, the buyer has a 7-day period to cancel the contract and the seller has to pay back all the money received, and so on. That is why it is very important to make a thorough research about the state laws before making a decision.
Benefits of a Land Contract
Buying through a contract has its benefits for both the seller and the buyer. Buyers prefer to use land purchase contracts when they are interested in buying a property, but cannot obtain a mortgage from a financial institution due to an unestablished or poor credit. In this case, a contract is signed according to which the buyer pays money directly to the seller on a monthly basis. For many buyers, it is the best way to purchase land or a home. Paying the due installments for several years may convince a financial institution that you are creditworthy and help you to get a loan for the last balloon payment often stipulated by the agreement.
The seller, albeit not receiving the full price at once, can also benefit from this type of contract. First of all, the buyer usually more readily agrees upon a higher price due to the inability to obtain any mortgage loan. Besides, the seller often demands a large down-payment and charges a higher interest rate.
How Does a Land Contract Work?
Buying a house on a contract always starts with an agreement on all parts of the document. After signing the contract and making the first required payment, the buyer obtains an equitable title to the property, while the seller still remains a legal titleholder. The buyer, as an equitable titleholder, has specific rights for the mentioned property. For example, if you purchase a house, you can move in and use the house and grounds as your own. However, you will often be limited to making changes in that property.
You are required to make payments on a monthly basis in the amount defined by the contract. The whole scheme is very similar to making payments on a mortgage. However, the full purchase price should often be paid years earlier than when dealing with a financial institution.
Be careful when signing a contract. Make sure the seller has a clear title to the property to avoid potential issues in this respect. Inspect the property thoroughly. If the seller agrees to fix any defects, add this condition to the contract or it will not be binding.
The legal title to the land or building you buy remains with the seller until you make a final payment and satisfy all the other conditions of your contract. Generally, the seller has no right to sell the property to a third party or subject it to an encumbrance or lien that may interfere with your interest. Upon meeting all the conditions of your land or house contract, the full rights to the property are transferred to you via a deed.
A Land Contract can be risky to the buyer. If you fail to meet all the conditions or make appropriate monthly payments, the seller can initiate a Land Contract forfeiture. Forfeiture is a court action that often results in your losing all the money you have paid on the contract and the property. Your equitable title will be abolished. The seller keeps the paid sums that often include a considerable down-payment and keeps the property that can now be sold to a third party.