![]() Sometimes, the buyer will pay the balloon payment in cash, but more often than not, they obtain a mortgage from a traditional lender to complete the purchase. At the end of that two-year period, a balloon payment of the loan balance initiates the transfer of title. Most seller financing agreements are for two years. That means you could offer buyers a lower credit score requirement, lower down payment or lower interest rate than what a traditional lender would be willing to.Ĭontract is usually much shorter: Unlike a traditional mortgage that is paid off in 15 or 30 years, with seller financing, the buyer typically pays off the house much sooner. The seller can set financing qualifications: Since you, the seller, are acting as the lender, you can set your own benchmarks for who qualifies. ![]() This prevents the seller from selling to someone else simultaneously. While the seller maintains the title, the buyer is considered to have 'equitable title,' as they have a partial interest in the home. There’s no deed transfer: In a seller financing agreement, the seller keeps the deed and the title to the home until the land contract is paid off and contract terms are fulfilled. How does a land contract differ from a mortgage?Īlthough they are both types of home-purchase financing, a land contract differs from a traditional mortgage in a few significant ways. In rent to own, the eventual buyer pays monthly rent payments, with a small amount of additional money added to their payment that goes toward principal, as part of an option-to-purchase agreement. It's important to note that a land contract is not the same as a rent-to-own arrangement. Sometimes, people will use the terms “selling on contract” and “land contract” interchangeably. It outlines how much the buyer will pay each month, including both principal and interest. The land contract is always a written, legally binding contract signed by both buyer and seller. The whole process is often referred to as 'selling a house on contract.' What is a land contract?Ī land contract is the contract that results from a seller financing arrangement. Then, after a set period of time (usually no more than two years), they pay off the loan with a balloon payment and take ownership of the home. The buyer pays the seller a monthly payment that covers principal, interest, taxes and homeowners insurance. What is seller financing?Īlso known as owner financing, seller financing means the seller is financing the property for the buyer, instead of the buyer taking out a mortgage from a traditional lender. And selling on contract is typically only an option for people who own their homes outright. Depending on how much interest you're able to charge, you could get a better rate of return than other types of investments.īut selling a house on contract can be risky if you don't take the necessary precautions to protect what is probably your largest asset - your home. And when you sell a home on contract, you're allowed to collect interest - much like a lender does on a traditional mortgage. Selling a house on contract can be a smart way to create a steady stream of monthly income while also attracting buyers who might not qualify for a traditional mortgage. Tips for selling in an owner-financing land contract.How to sell a house on contract with seller financing.Drawbacks of selling a house on contract.Benefits of selling a house on contract.
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