A land contract – often described by other terms cited below – is a contract between the buyer and seller of real estate, in which the seller provides financing to the buyer at the time of purchase and the buyer rem pays the loan obtained in increments. As part of a land contract, the seller reserves the legal right to the property, while allowing the buyer to take possession of it for most purposes other than legal property. The sale price is usually paid in regular instalments, often with a balloon payment at the end, in order to reduce the duration of payments compared to the fully depreciated loan (i.e. a loan without a final balloon payment). If the full purchase price, including interest, is paid, the seller is required to transfer (to the buyer) the title to the property. A first down payment from buyer to seller is usually also required. While most land contracts can be used for many reasons, their most frequent use is a form of short-term financing from sellers. As a general rule, but not always, the date on which the total purchase price is due will be years earlier than if the purchase price was fully paid in accordance with the amortization plan. As a result, the last payment is a large balloon payment. Because the amount of the last payment is so high, the buyer can get a conventional mortgage from a bank to make the final payment.
Land contracts are sometimes used by buyers who are not eligible for traditional mortgages offered by a traditional credit institution, for reasons of unseated loans or poor loans or insufficient down payment. [Citation required] Land contracts are also used when the seller is sold with zeal and the buyer does not have enough time to arrange conventional financing. It is customary for the staggered payments of the purchase price to be similar to high-rise mortgage payments. The amount is often determined according to a mortgage amortization plan. In fact, each staggered payment is a partial payment of the purchase price and a partial interest payment on the unpaid purchase price. This is comparable to mortgage payments, which are a partial repayment of the principal mortgage amount and partial interest.