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Land Contract
An alternative to a non-conforming
loan is the use of a land contract, which is allowed in some states. A land
contract is an agreement between a buyer and a seller, where the buyer
agrees to make periodic payments to the seller. The title to the property
only transfers to the land contract buyer on fulfillment of the land
contract obligations.
A land contract can be helpful for
those who need time to establish or improve their credit rating. There are
only small closing costs, and payment can help establish a good mortgage
payment record. This can help establish an overall good credit rating, and
it is possible for the buyer to later refinance the land contract with a
conforming loan.
On the other hand, there are risks
associated with land contracts. Land contract purchases are not necessarily
recorded in the public record, and there are no guarantees that the seller
will be able to transfer a clear title to the buyer upon fulfillment of the
land contract. There also is no lender assuring that the purchase price for
the property is justified, and no inspection of the property's condition.
Another alternative to a
non-conforming loan is assuming the seller's mortgage. By assuming a
mortgage, if the mortgage is assumable, it is possible to save on closing
costs, and may allow you to obtain a favorable interest rate.
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