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Question by My Thoughts U Can’t Decode: How exactly does a land contract work?
I am renting a house right now and we are very pleased with it. The landlord is a friend of my sister and her husband and was talking to them about wanting to sell in the future. My brother in law told me I should talk to the landlord about a land contract since I don’t have good enough credit to get anywhere near a loan right now.

My question is, how exactly does a land contract work?

Best answer:

Answer by Ed
In a land contract transaction, you will take ownership in the form of an equitable title to the property and will then make “mortgage” payments to the seller instead of to a bank. The seller, in this case your landlord, will still retain legal title. This can be risky to do if the landlord has a mortgage and for some reason defaults. You also have additional risk since the landlord will still have legal title.

If you do decide to buy this house with a land contract, make sure to consult an attorney.

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1 Comment

  1. Most sellers want their money up front when the sell their property. They don’t get much of their money in the sell on a land contract, but only your down payment and any excess on the monthly payment. With a land contract you make payments to the seller and the seller makes their to their lender. That leaves the door open wide open for fraud by the seller.

    You make your down payment and the monthly payment to the seller, except he doesn’t any payments to his lender. After 3-6 months his lender forecloses on your property and you end up losing everything.

    Another case….the lender finds out that he sold the property to you. The lender exercises the “due on sale clause” and even though the seller is making the payments on the mortgage the lender forecloses.

    Point being, land contracts are extremely risky and really not in the buyers best interest. I would say your brother-in-law is an idiot.

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