Author Topic: Land Contract Advice?  (Read 3994 times)

gecko10x

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Land Contract Advice?
« on: December 03, 2012, 10:58:16 AM »
Our former house has been on the market for about 8 months. We have had a few offers fall through for various reasons, and have just been informed that there is a person/couple interested, but only interested in doing a Land Contract. We have no experience with that type of agreement (this is the first house we've attempted to sell), and don't know where to start, but are willing to consider it, given that it isn't selling and winter is now here.

We know basically nothing yet, but based on the house price (~$100k) and market, we have to assume that they are unable to get traditional financing for whatever reason. Does this by itself indicate this would be a high-risk option?

Does anyone have any tips/advice, or able to point me at some good resources? We did a few quick searches to get a general idea of how they work, and our RE agent is going to send us an example of one he did last week, but right now we still feel really in the dark about how to proceed.

Thanks!

tooqk4u22

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Re: Land Contract Advice?
« Reply #1 on: December 03, 2012, 11:11:07 AM »
The fact that they need this means it is higher risk - its hard to get a mortgage nowadays but not that hard especially with the FHA loans still out there (if you can't get an FHA loan you its bacause you don't have a pulse or the house doesn't qualify).

That said it doesn't make it bad. You are essentially providing the financing so you won't get your money up front - not sure if there lenders that will finance a land contract.

Big down payment, taxes paid each year up front, acceleration clauses if payments, taxes aren't paid or if liens show up on the property.  Insurance requirements.

Obviously you don't have all the details yet, but honestly this is probably not the way to go. 

Sure you can foreclose but what if the destroy the property.  If it was just land then I would probably be more interested.

ketchup

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Re: Land Contract Advice?
« Reply #2 on: January 06, 2013, 12:58:10 PM »
This is how I bought my house.  A traditional mortgage would have been a stretch due to the low price of the house ($18,500) vs. closing costs, and credit would have been an issue as well presumably (I was 20, and my girlfriend was 19 at the time. I had very young credit and she had none).  Our super awesome real estate agent used a template to put together a contract for us, then put us in touch with a lawyer to look everything over and make sure our collective asses were covered.  The cost of that was still over $300 but well under typical closing costs.

Of course it was more of a risk to the seller, but that was accounted for in relatively high interest (5%), a shorter loan (5 years), and a decent sized down payment (20%).  Property taxes are factored into our monthly payments.  We also had to figure out our insurance in a more complicated than usual fashion, with the seller still on it until we pay it off. But that was all figured out by purchase time.

Here we are almost a year after purchase and everything is going smoothly.  We were able to buy our house at a young age, and the seller was finally able to sell his house that had been on the market for six months.

It could help someone that doesn't really have other options (for whatever reason) but of course there is more risk.

arebelspy

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Re: Land Contract Advice?
« Reply #3 on: January 06, 2013, 01:45:33 PM »
Do you own the house free and clear?

Are you willing to carry paper on it?

Find out right away what they are willing to put down.  Better be a large amount, or skip the whole thing to start with.
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PawPrint53

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Re: Land Contract Advice?
« Reply #4 on: February 17, 2013, 04:55:00 PM »
Ketchup, does the seller have a mortgage on the property you bought via a land contract? If so, do you know how they got around the due-on-sale clause? I imagine financial institutions aren't really enforcing that, but if you hold the insurance policy and the insurance company has to send a copy to the lender, the lender would know that the property had been sold. If the seller still has a mortgage on the property, then they must get the mortgage interest deduction because they'd get the tax form. I'm curious because I may go this route in selling my home to my son.

arebelspy

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Re: Land Contract Advice?
« Reply #5 on: February 17, 2013, 05:34:58 PM »
They know. They don't care. It's a risk, but such a minor one.

Due on sale clause has very little teeth, in today's market a bank want call a performing loan, and if they do you can make enough of a stink they'll back down.
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Another Reader

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Re: Land Contract Advice?
« Reply #6 on: February 17, 2013, 08:23:46 PM »
I dunno about that.  I'm having a lot of problems with Chase over an inherited property that border on harassment.  In California, you can't call a mortgage loan when an owner-occupied property is inherited by a family member.  However, they refused to allow me to assume the loan on a non-qualifying basis because it's rented now and they won't issue a 1098 because the loan is now in the name of an estate.  No problem issuing a 1099 to the estate for the interest on the escrow account, but no on the 1098.  Ummm...someone has to file a tax return, why not just issue the damn thing in the name of the estate?  I have to prove I am the executor of the estate (long since closed out) to discuss the insurance with them every year (it's a townhouse and the bulk of the insurance is carried by the HOA), which they mysteriously lose. 

I may at some point have to force their hand by moving into the property, which will require them to allow me to assume without qualification under California law.  Then I can re-fi at a lower rate as an owner-occupant.  With someone other than Chase....

ketchup

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Re: Land Contract Advice?
« Reply #7 on: February 17, 2013, 09:10:36 PM »
Ketchup, does the seller have a mortgage on the property you bought via a land contract? If so, do you know how they got around the due-on-sale clause? I imagine financial institutions aren't really enforcing that, but if you hold the insurance policy and the insurance company has to send a copy to the lender, the lender would know that the property had been sold. If the seller still has a mortgage on the property, then they must get the mortgage interest deduction because they'd get the tax form. I'm curious because I may go this route in selling my home to my son.
No, the seller owned the house free and clear. I imagine it would get suitably more complex were that not the case.