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The In's and Out's of Land Contracts


    Land contracts have started to see growth and have become a creditable option for homebuyers to use since the mortgage crisis of 2007-2010. They are used when a buyer is not willing to go through a bank or other type of mortgage company, or when they may not have the credit score they need or meet the qualifications of the application for the house they want. But what is a land contract, and how does it work? What are the pro's and con's of obtaining a land contract? At Southern Title of Ohio, we believe it is important to know what you are getting yourself into, so in this article we will go over these topics so that you know if this option is right for you. 

    A land contract is a written legal agreement that is used to buy real estate, such as vacant land, a house, an apartment building, a commercial building, or any other kind of property. It is similar to a mortgage, but instead of borrowing money from a lender or bank, the buyer makes payments to the real estate owner, or seller, until the purchase price is paid in full. You may see these kinds of contracts called something else depending on your location, like installment land contracts, contracts for deed, memorandums of contract, real estate contract, or bonds for title.

    The pros of a land contract are as follows:


  • It is easier to get financing. These contracts make it easier for people who may not be able to get a mortgage through traditional means, and allows them to build their credit while already living in their home.
  • It is a win-win for sellers. This is because they have met their goal of selling their property and are also getting a steady stream of income from you. If you don't make the payments, they can take it right back. 
  • More purchase opportunity. You may be able to get the home at first through the land contract and then once the payment becomes smaller, you can pay off the contract with a mortgage.

  • You depend on the seller. As a buyer you are placing a ton of trust into your seller. If the seller isn't being up front with you or doesn't have the mortgage paid off themselves, you could lose the home at no fault of your own.
  • Higher interest rates. Because the seller is taking on a higher risk, they will probably charge you a higher rate than what you would normally see.
  • Homeownership gray Area. In a land contract you will receive an equitable title so that you gain equity as you make your payments, but the seller still holds the legal title until you have paid in full. This can cause issues if you need to file an insurance claim or have any legal disputes for any reason. 
    So there are the in's and out's of a land contract. Remember it is always important to go over every inch of your contract to make sure you and the seller are on the same page. You do not want any surprises when trying to buy your home or piece of land. If you need assistance with your land contract or need any other title services call Southern Title of Ohio. We have locations in Mansfield, 419-525-4600, Wooster, 330-263-5080, Galion, 800-525-2921, and Sandusky, 419-621-5550 that are ready to help you when you need us. 


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