How to Purchase a Home by Land Contract
- 1). Negotiate a price. If you cannot afford a down payment, be aware that the seller will probably demand a premium on the ultimate sale price that significantly exceeds the amount of any down payment he would have demanded. Fortunately, however, you will have the entire length of the payment period to pay this amount.
- 2). Set an interest rate, monthly payments, total payment period, default provisions and late-payment penalties. The stated interest rate matters less than the actual amount of the monthly payments, the length of the payment period and the total sales price. The first payment should come due on the date that the contract is signed. The seller will almost certainly insist on holding title in his name until the end of the payment period.
- 3). Demand a clear provision obligating the seller to transfer title into your name as soon as you complete payments. Although you will be considered the "beneficial owner" even if the seller fails to transfer title, possession of the actual title document in your name is the only way to ensure full legal rights over the property.
- 4). Obtain a full legal description of the property from the county property office--a street address is not enough, because addresses often change. You will probably be provided with either a plat number or a description in metes and bounds. This would also be a good time to inspect county records to confirm that the seller is the actual owner of the property.
- 5). Set a date on which you are entitled to take physical possession of the property. This date should ideally be the date that you make the first monthly payment.
- 6). Put together a draft of the land contract, and add standard contractual housekeeping provisions such as dispute resolution methods and a prohibition against assignment of the contract to a third party.
- 7). Take your draft of the contract to a real estate attorney, and ask her to suggest revisions. Negotiate any suggested revisions with the seller and produce a final draft of the contract.
- 8). Present the first monthly payment to the seller at the same time that you sign the contract. If you are buying the land from a business entity such as a corporation, limited liability company or partnership, demand documentary evidence that the representative who signs the contract is authorized to contractually bind the company.