Special Financing

Land Contract. A Land Contract is a contract between a seller and buyer of real property in which the seller provides financing to buy the property for an agreed-upon purchase price and the buyer repays the loan installments. Under a land contract, the seller retains the legal title to the property, while permitting the buyer to take possession of it for most purposes other than legal ownership. The sale price is typically paid in periodic installments, often with a balloon payment at the end to make the time length of payments shorter than a corresponding fully amortized loan without a final balloon payment. When the full purchase price has been paid including any interest, the seller is obligated to convey legal title to the property to the buyer. An initial down payment from the buyer to the seller is usually also required by a land contract. The legal status of land contracts varies from region to region, but all land contracts should be drawn up by and executed by an attorney.

Lease w/Purchase Option. A lease purchase contract is a shortened name for lease with option to purchase contract. It is a form of real estate purchase which combines elements of a traditional rental agreement with an exclusive option of right of first refusal to later purchase the home.

These contracts are commonly used where a buyer wants to purchase a home, but due to credit issues would not qualify for a conventional mortgage and does not wish to, or would not qualify, for FHA or VA financing.

Under the typical terms, the tenant/buyer chooses the home and seeks a landlord/seller to serve as an investor. The tenant/buyer then agree to a lease period, during or after which the tenant/buyer has the exclusive right to purchase the home at a previously agreed-upon price. The tenant/buyer pays to the landlord/seller a non-refundable option deposit that is applied to the purchase price of the home. The tenant/buyer then pays to the landlord/seller a sum that is typical to the rental amount usually on a monthly basis, of which a portion of that monthly payment may or may not be applied to the purchase price of the home, but which normally covers the mortgage amount owed by the landlord/seller.

Should the tenant/buyer not wish or be unable to purchase the house, the tenant and landlord can agree to extend the option period, convert the lease purchase contract into a traditional rental agreement, or end the contract with the tenant moving out and the landlord seeking other renters or buyers. Lease purchase and lease option could be considered different where a lease purchase uses a purchase agreement and a lease option may not and an option is a unilateral contract and a purchase agreement is typically a bilateral contract.

Mortgage Assumption. Assumption of mortgage is the purchase of mortgaged property whereby the buyer accepts liability for the debt that continues to exist. The seller remains liable to the mortgage lender (whether the lender is a commercial bank, thrift, credit union, or mortgage banker) unless the lender agrees to release him.

For example, a homeowner owes a 30-year mortgage loan of $250,000 against his house. A prospective buyer wants to purchase the house and keep the same mortgage. The buyer pays $50,000 cash for the equity and assumes the mortgage, becoming liable for the debt. However, the original owner remains liable as well.

In the United States, most recent mortgages disallow assumption by including a due-on-sale clause.

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Additional Resources for Sellers

:: What is My Home Worth?

:: Tips for Selling Your Home

:: Estimating Seller Proceeds

:: Special Financing

:: Frequently Asked Questions About Selling A Home