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by Paul Anderberg
Using a land contract (or "contract for deed" or other similar terms) to buy your home is very similar to getting a mortgage loan from a lender and using these funds for your purchase. Some of the terminology is slightly different. The seller is known as the VENDOR; you, the buyer, are known as the VENDEE. In this type of transaction, the seller/vendor makes the final decision about whether or not to make the loan.
Whether you use your own funds and pay cash, or if you borrow the money from a lender, or if you buy on the instalment plan (land contract sale) directly from the seller - you OWN the property! You do not receive the deed to your property until you fullly discharge the land contract, but you do get what is known as equitable title. This form of ownership en"titles" you to all of the rights (like the tax benefits) and privileges (like paying the property taxes!) that cash buyers get.
Not having the bank involved in your real estate transaction is good in an important way. They won't kill your first home deal just because you don't presently meet their standards for income and/or amount of down payment available. You may not have much money saved for a down payment yet, and you are still earning a relatively small salary - but you KNOW that will change soon. Just because you are not qualified for a home loan in the eyes of the bank doesn't mean you shouldn't be a homeowner. Many sellers will share this point of view.
However, there is an important reason to get a new mortgage loan from the bank in order to buy your home: they take care of many important details for you. These matters include ordering the appraisal, title search, and survey. The bank will set up property tax and insurance escrow funds, do the document preparation and recording, and perform the closing itself.
In fact, although I firmly believe you should always retain an attorney to review all the documents (banks DO make mistakes!!) you can probably get by without hiring (and paying for) a lawyer if you buy your home with a financial institution's assistance. On the other hand, if you do choose to buy your home using a land contract, retaining a qualified REAL ESTATE lawyer is imperative!!
For more information about land contracts, mortgage loans, working with a real estate agent, and other topics, please visit the author's website.
About the Author
Paul is the author of many articles about real estate. Some of them are printed on his website: http://www.first-time-home-buying.net
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