Land Contract an Option in Unsure Mortgage Market

With sluggish home sales in many areas and mortgage interest rates creeping upward, some sellers and buyers are eyeing land contracts.

A land contract also is known as an "installment sales contract" or a "contract for deed." Not only does the terminology vary, but the laws governing these security agreements also differ considerably from state to state.

Still, the basic idea is the same. In a land contract, the seller carries the financing for the buyer, who makes monthly payments to the seller over time to pay for the property. Unlike in a mortgage, however, the seller retains the deed to the property. The buyer doesn't receive the deed until he or she has paid off the land contract in full.

If the buyer fails to make the payments or in some other way violates the land contract, the seller can take the property back. On the surface, a land contract may seem to be an ideal way to spark buyers' interest in your home. But these arrangements are fraught with legal complexities, so sellers must follow a few precautions:

* Avoid false expectations – The seller may assume that if the buyer defaults on payments, the buyer will move out or, if necessary, the seller will evict the buyer. It may not be so simple.

* Know the law – Although sellers retain ownership of the property, buyers who have made payments, and thus built equity, have rights, too. Removing a buyer can turn into a lengthy legal process, depending on state law.

* Know the buyer – You want to be as sure as you can be that the buyer is someone who will take care of the property, pay the property taxes, and keep the property insured. The insurance policy should list both the seller and buyer as insured parties.

* Seek legal help – Land contracts must cover numerous issues. These contracts are not do-it-yourself projects. See an attorney who is well-versed in the land contract laws in your state.

If you're ready to buy a house—through a land contract or the traditional way—Harvard University Credit Union can help. You may find that a conventional mortgage is within your reach, and you'll avoid the potential risks of a land contract. Visit us today or call 617-495-4460.