A land contract is an agreement between a buyer and seller where the owner provides financing to the seller. In most scenarios, the buyer makes monthly payments to the seller over an agreed upon period of time, and then a balloon payment is paid later to complete the agreed upon amount. The buyer assumes possession, but the seller retains the title until the agreed upon amount is paid off by the buyer. In many ways, it functions like a car loan with a bank where the bank holds the title until the car is paid off.
Benefits to the Buyer
A land contract allows a buyer to finance a purchase from the owner without the involvement of a bank or any of the other third parties required in traditional financing with a lending institution.
The purchase can take place more quickly, and there are often fewer fees and long-term costs associated with loan rates like there would be with a bank.
Another important benefit is that typically the down payment amount required by a bank or other lending institution could prevent a buyer from being able to buy from a seller, so a land contract (owner financing) can prevent that barrier from completing a sale.
It is important for a buyer to have an attorney review any land contract agreement to avoid any potential risks.
Benefits to the Seller
A land contract allows a seller to provide financing to a buyer while avoiding some of the costs typically associated with a sale. The seller could net more money from the sale because they wouldn’t be paying bank fees, commissions related to the sale, etc.
The seller retains the title while the buyer is making payments and finishes paying for the agreed upon amount.
Sellers should use caution when contemplating the use of any “free” templates you may find online. It is important that an attorney review or draft any land contract agreement before presenting it to a buyer.
Learn More About Land Contracts
Do you have any questions about land contracts? To schedule a free consultation to discuss the benefits of buying and selling under a land contract, please call 216-307-5590, or get in touch using our online intake form.
All the best,