Posted by JohnBoy on April 08, 2000 at 21:48:19:
Payments will be determined by the interest rate and terms of the contract. All of this is what you and the seller agree on. Usually a seller that sells on contract will want to get paid off within a couple of years. You would refinance by getting a new mortgage and paying off the seller. If the seller wants you to refinance in 2 years the way you would set up the payments would be like a mortgage. You agree on an interest rate and amortize the amount your paying over 30 years. Then ad in a balloon payment for the balance of the principle to be paid in 2 years or what ever length of time you and the seller agrees on.
If your loan amount is $150k at 10% interest with the balance due in 5 years, your payment each month would be $1,316.36 plus taxes & insurance. At the end of 5 years your principal balance would be $144,861.23 to pay off the contract.
At 8% interest your payment would be $1,100.65 plus taxes & insurance. At the end of 5 years your principal balance would be $142,604.60 to pay off the contract.
So you can see how much your payment is reflected by the interest rate you agree on. As the buyer you try to get the lowest price at the lowest interest rate and the seller to carry for longest number of years.
The annual taxes and insurance should be divided 12 months and that amount paid monthly to be held in an escrow account to insure that money is there when those debts come due.
You would also want to make sure you record your contract at the county court house. Being your first contract you should use a real estate attorney to look everything over for you and make sure your properly protected. This should only cost you $200 - $300 and would be the best money you ever spent to protect your interest.
The only costs involved besides your attorney should only be recording fees to record your contract.
Since the property is free and clear try to get the owner to finance you as the lender where you get title now and he holds the mortgage. He can still put a balloon payment due in a mortgage. Getting the deed is better than buying on contract if at all possible.