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What is a Land Contract?

A land contract is a "rent-to-own" type of agreement between the buyer and the seller of a real estate property, where the seller remains titleholder for the property until the buyer meets all of the agreed upon payments in full. An initial down payment is usually made by the buyer, followed by monthly installments until the full price of the home is completely paid off. Throughout the duration of the contract, the seller is responsible for paying the mortgage of the home, using the monthly payments made by the buyer.

The most important difference between a mortgage and a land contract is that with a mortgage, the deed (a legal instrument transferring the property rights) is transferred to the buyer immediately upon purchase of the home. In a land contract, the deed does not transfer until after all the payments have been made. Although the buyer will live on the land, the property remains under the title of the seller until all installments have been paid. Adhering to a land contract, rather than a mortgage, is a viable option for people who are lacking in funds for a substantial down payment. Down payments for land contracts are typically lower (usually 3-5%, compared to 20% for traditional mortgages), and the contract itself is between the buyer and the seller, without the involvement of a bank or mortgage company. As the property transfer process can sometimes be complicated, buyers are wise to review all contract terms with an attorney.

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