Introduction
Mortgages are the typical method used by many people to buy a house. However, there are other options that can be very beneficial to both the buyer and seller of a house. It is known as a land contract. A land house sale contract is a security agreement between a buyer, called a vendee, and a seller of a house, called a vendor.
Step 1
A land house sale contract will enable the seller of a house to finance the purchase of a house, for a buyer. The vendor will retain legal title over the house, and the vendee will receive equitable title over the property. A land house sale can accommodate an already existing mortgage. Once the vendee completes payments on the house, they will receive legal title over the house.
Step 2
There are two basic types of land house sale agreements: all-inclusive land contracts and straight contracts. Under an all-inclusive land contract, the buyer (vendee) will make one payment to the owner of the property. Upon receipt of the payment, the seller (vendor) will make payments for the underlying mortgage and pocket the remainder of the money. This type of contract is beneficial to the seller, if the interest rate on the contract is higher than the interest rate on the underlying mortgage.
Step 3
For instance, let’s say the selling price of a house is $100,000. The buyer/vendee is then puts down $10,000 and agrees to make payments for the remaining $90,000, bearing an interest of 6.5%. The existing underlying mortgage for the house is valued at $50,000, bearing an interest of 5%. This land house sale arrangement will enable the seller/vendor of the house to earn 1.5% interest on the existing $50,000 mortgage and 6.5% interest on the remaining $40,000.
Step 4
A straight contract on the other hand is more beneficial to the buyer of a house. Through this land house sale contract, the buyer can either choose to make payments directly to the mortgage lender and another payment to the seller of the house for the remaining balance or to make one direct payment t the seller, who should then take care of his financial obligations.
Step 5
For instance, let’s says the sale price on the house is $100,000. The buyer then puts down $10,000 and agrees to make payments for the underlying $50,000 mortgage, bearing an interest of 5%. The buyer will then make payments for the remaining $40,000 to the seller, bearing an interest of 6.5%. This land house sale agreement would be $46 cheaper than the previously mentioned all-inclusive land contract.
Tips
Some states have laws treat land house sale agreements the same as a trust deed, and hence will require a trustee. Under this arrangement, the trustee will be given the powers to initiate foreclosure proceedings in the event the buyer/vendee defaults on the contract. For this reason, it is always wise to qualify the buyer/vendee, so as to reduce the chances of default.
You can qualify a buyer/vendee in a land house sale agreement by obtaining their credit report. Make sure to look for any potential red flags, such as a bankruptcy filing, default on payments, etc.
