January 16, 2014 (Newswire.com) - Approximately 1.1 million homes in the U.S. were in some stage of foreclosure as of March 2013, according to worldpropertychannel.com, which has caused very tight loan restrictions. These foreclosures were caused because of lenders getting creative with mortgage acceptability by offering deals such as; The Adjustable Rate Mortgage (ARM), zero down mortgage, interest only mortgages, no money down, and purchasing a home for $200 closing fees.
The largest overlooked real estate market currently are those people who lost their homes due to foreclosure, who will need another option to secure a home for their families and the buyers who are finding it difficult to obtain a loan due to stricter mortgage guidelines, caused by the high amount of foreclosures in the U.S., or who have a less than acceptable down payment. These buyers will need a creative financing option. An expert agent with some experience in negotiating a land contract is ideal.
Land contracts were popular back in the 1970's and early 1980's, due to high interest rates and rigid qualification standards of institutional lenders. They later began to disappear when interest rates dropped below 8% and loan restrictions softened. However, they have never vanished completely, but due to tightening loan restrictions, they have started appearing more frequently in the market since about 2006.
A land contract or a contract for deed is an agreement between a seller (Vendor) and a buyer (Vendee). It is similar to a mortgage, but instead of going to a bank for a loan, the seller is agreeing to finance the purchase for the buyer. Under a land contract the seller retains legal property to the title, while the buyer receives equitable title. Upon payment in full, the buyer receives the deed to the property. The basic difference between a land contract and a mortgage is that the buyer does not receive a clear title to the property until the land contract is paid in full.
However, know that this can be a risky investment, since the buyer can, at some point, fail to make payments. If the buyer does not perform all of the obligations under the contract, then the seller may cancel the contract and retain all payments that have been made. When the contract is canceled, the buyer loses their equity, down payment, and monthly payments.
Land contracts can enable an easier sale for both the buyer and seller without involving a bank.
For the buyer, using a land contract removes many obstacles that banks, due to stricter requirements, can put in a buyer's way. Just because a buyer doesn't fit a certain banks "profile" of a good mortgage loan risk, doesn't mean the buyer is not in the financial position to purchase a home. A smaller down payment can be negotiated, along with the terms, payment amount, and interest rate. Closing costs are lower and the time to close on the property is usually much quicker.
For the seller, once you advertise this option to the market for buyers, you immediately generate a larger pool of potential buyers for your home, which often leads to a quicker sell. Commonly, the seller will receive a higher sales price if going with a land contract without having to deal with an appraisal. It can give you a built-in monthly income and possibly a better interest rate than you would get from a savings account, a money market account, or a certificate of deposit. The buyer assumes all responsibility for property taxes, insurance, and all repairs and upgrades to the home. Keep in mind, that it is wise for the seller to ensure that the buyer can fulfill the terms of the contract.
It is a good idea for a buyer and seller to use an expert agent to do the foot work in a land contract deal. An agent can lead both through the process of smooth negotiations, a credit check, inspections, the legal contract, and closing the deal. A Real Estate Professional cannot write a land contract because he/she is not a licensed attorney. However, they are knowledgeable on the "ins" and "outs" of such contracts, and can recommend attorneys from which to choose to write a contract for you.
Land contracts may be the most overlooked market in real estate today. A new market full of eager buyers unable to finance through conventional mortgage means, land contracts are being used more and more as a realistic purchase option, offering a way out of mortgage payments for the homeowner and a way into home ownership for a buyer with less than ideal credit and/or a less than acceptable down payment. Sellers, buyers, and real estate agents are overlooking this market at a time, more then any other time in history, that it may be needed most.
"I see contract sales as the most untapped market in real estate today."
- Gena Martin Realtor