Posted by Craig on May 01, 2000 at 10:51:02:
Well undoubtedly you will be refered to check out Bill Bronchicks materials by someone here and i’m sure they are the best on the subject.
Here is a brief description of how a Land Contract aka. Contract for Deed works. It is basically an agreement that allows the seller of a home to carry back financing without having to transfer title to the buyer. In many states this is a particularly beneficial arrangement for the seller because if the buyer defaults the seller does not need to foreclose in order to get the title and boot the buyer out. It works kind of like an All Inlusive Trust Deed or Wrap Around Mortgage where the seller has an underlying loan or loans that remain in place, while you are making payments. Most often the LC is used as a form of temporary financing with a short term balloon giving the buyer some time to build equity and perhaps improve their credit before getting a loan to cash out the seller. It’s especially good for buyers that may not have any or a big enough down payment. Loans after 12 months of payments on a LC are treated as refinance loans thus not needing a down payment.
Some things to watch out for when purchasing with a contract are that the seller does not owe more on the property than it is selling for on the contract. Also that the seller actually is holding title, and definately you need a way such as and escrow service to make sure the seller is making his loan payments along the way. You don’t want to find out he’s being foreclosed on after you paid him $5,000 down and made 6 payments. There are alot of other things to look out for, but I don’t use LC’s much so I am not even close to an expert.
Hope this helps though.