When it comes to buying or selling property, there are several types of contracts that can be used. One option is a land contract, which is a type of seller financing. In this article, we’ll take a closer look at what a land contract is and what its terms typically include.
First, let’s define what a land contract is. A land contract is a legal agreement between a buyer and seller in which the seller agrees to finance the purchase of the property instead of the buyer obtaining a traditional mortgage loan from a bank or other lender. The buyer makes regular payments to the seller, and once the full purchase price has been paid, the buyer takes ownership of the property.
The terms of a land contract may vary depending on the agreement between the buyer and seller, but typically include:
Purchase Price
This is the total price the buyer agrees to pay for the property. It may include interest and other fees, depending on the agreement.
Down Payment
The down payment is the initial amount the buyer pays at the time of signing the contract. It is typically a percentage of the purchase price, and can vary based on the agreement.
Interest Rate
The interest rate is the percentage of the loan amount that the buyer will pay in addition to the principal amount. The interest rate may be fixed or adjustable depending on the agreement, and may also be influenced by the buyer’s credit history.
Payment Schedule
The payment schedule outlines when payments are due and the amount of each payment. It may be set up as monthly, bi-weekly, or other intervals, depending on the agreement.
Length of Contract
The length of the contract is the amount of time the buyer has to pay off the purchase price and take ownership of the property. This can vary depending on the agreement, but is typically around five to ten years.
Default and Remedies
The contract should also include information on what happens if the buyer defaults on their payments or doesn’t meet other obligations outlined in the agreement. It may include fees, penalties, or even the right for the seller to repossess the property.
Closing Costs
Closing costs are the expenses incurred during the sale of the property. These costs may be included in the purchase price or paid separately by the buyer or seller, depending on the agreement.
While the terms of a land contract may vary depending on the agreement between the buyer and seller, these are some of the most common terms that are typically included. If you’re considering a land contract, it’s important to have a clear understanding of the terms before signing the agreement. It’s also recommended to work with a real estate attorney or other professional to ensure all aspects of the contract are legal and fair.