How Does Buying a Home by Land Contract Work?

Land Contracts have a number of names: sometimes they are called Trust Deeds, Contract for Deed, Deeds of Trust, Notes, or Privately Held Mortgages. But they all represent the same thing: a way of selling property where the buyer relies upon the seller for the financing rather than paying cash up front or borrowing from a bank.

So what is the process of buying a home or undeveloped property via Land Contract?

To execute a land contract, the seller and buyer enter into an agreement that typically states that the seller shall transfer ownership of the property to the after the buyer has fully paid the seller the agreed upon purchase price. In most cases, the contract requires the buyer to make a modest down payment and then to make monthly payments over time. The Land Contract usually requires the buyer to pay the seller interest on the money owed (just like a bank would). Also, because the buyer and seller privately negotiate and reach their own sales terms, the contract can also call for smaller monthly payments – beneficial to the buyer – and then a balloon payment to be made at some certain period of time. This balloon or lump sum payment will cover the balance of the purchase price for the property.

During the term of the land contract (i.e. while the contract is in force and effect, as the buyer does not own the property outright until all of the payments are made), the buyer holds legal possession of and occupies the property. But the land contract can call for transfer of the property once the seller has received all of the required payments, or the contract can call for the transfer at some time sooner, with the seller then holding a mortgage on the property to ensure that the balance of the purchase price will be paid in full.

Whatever the terms agreed upon for transfer of ownership, when the agreed upon transfer date is reached, the seller tenders (or gives) a deed to the property to the buyer who then records the deed in the county recorder’s office or the real property office of the county where the property is located.

Buyers and sellers interested in easily creating a valid Land Contract can get details here on Standard Legal’s Land Contract legal form software.