As house loans are getting harder and harder to come by after the sub-prime crisis, house-hunters are looking for newer ways to finance their purchase of land. Land is an extremely pricey commodity wherever you go, so it is not always as simple as going to a bank, making a withdrawal from your account, and paying the necessary amount. One of the popular ways of purchasing a land is through a land purchase contract.
What is it?
A land purchase contract, like any other contract, is an agreement between two parties, one the buyer and other the seller, for a property deed. The deed to a land forms the consideration of this contract. We can think about it as a ‘loan’ given by the seller of the land, which the buyer will repay within the specified time, with the specified amount. Simply speaking, it is similar to a lease agreement, except that the buyer gets the deed of the land at the end of the lease period. The vendee (buyer) has to pay a down-payment on the property as well. So while the ownership of the land remains with the vendor (seller), the vendee, for consideration, enjoys the use of the property and has to pay the necessary dues for maintenance.
Entering into an Agreement
The seller and the buyer enter into a contract stating that the seller will agree to transfer the deed of property (ownership) to the buyer, specified in the contract, after the buyer has paid the required agreed-upon amount, in the form of installments, for the required period of time. It is always beneficial to both parties to have their land contract forms examined by a certified real estate attorney to avoid any legal discrepancies, or if some terms of the contract are not in agreement with the law of the state. These laws vary from state to state, so it is always beneficial to employ an attorney. The amount would be inclusive of rent for the use of land, along with the interest. As mentioned earlier, the vendee also has to pay the down-payment on the contract. A land contract provides protection to the vendor as in case the vendee defaults on regular payments, the vendor can rescind (cancel) the contract.
How does it Work?
A land purchase contract works in favor of both the parties. The vendor enjoys the ownership of the land until the final payment is made, thus securing him from defaults. In case of default, the vendor is not liable to pay the installments or the down payment which he has already received on the land. The vendor can prepare a contract as per his wish, as there are no regulations governing it. He can even ask for a higher price than the market rate, if the buyer is ready to pay. He also gets paid in convenient installments, as opposed to a lump-sum, so he enjoys a continuous flow of passive income along with the ownership of the land, for that period.
For the buyer, he can avoid running to the banks, and the whole paperwork process. Anyway, since loans are hard to come by and the credit-rating scales are becoming more and more strict, this option for buying a piece of land is one of the best available to him. He can pay small amounts over a period of time, thus not burning a big hole in the pocket. He is also allowed to enjoy the use of land for almost all purposes, as if it were his own. He only cannot mortgage that land, as it does not belong to him yet. Lastly, unlike renting, the buyer, at the end of the contract period, gets ownership of the property, which is a valuable asset.
Buying land is a common aspiration. So don’t be disheartened simply because you are unable to procure a loan. The land purchase contract is a good and convenient way to fulfill your dream.