How does a land contract work?
July 7, 2009 10:53 AM Subscribe
Is buying a home on land contract or as a lease option ever a good idea?
posted by howrobotsaremade to work & money (6 answers total) 4 users marked this as a favorite
For the last couple years I have been working diligently to clear up my formerly terrible credit. However, it will probably be a year or possibly two before it's in good enough shape to qualify for a mortgage, even with a cosigner.
The problem is, I have recently found out that I will probably need to move out of the house I'm renting in the next 6 months. I live in a very tight rental market. I am not finding any suitable rentals within my price range that are kid/pet friendly in this school district.
As I've been looking, I keep seeing listings for companies who are offering homes as a lease with option to buy, or on land contract. On the surface, this sounds like a good idea for someone like me. But if it was that easy, why don't most people buy homes this way instead of going through a regular bank?
Is this fundamentally a bad idea? Will I end up paying much more for the home, even if I buy it out with a bank mortgage in a couple years' time when my credit has recovered? Does buying a home this way remove any of the legal protections that one would normally get in a conventional home purchase? From what I understand, the biggest concern is that often the contract is written in a way that makes it very easy to lose the home and any money invested into it, for a multitude of reasons. But does this work well for people if the payments are always made on time?
I have not had much luck finding straight answers on the pitfalls of doing one of these deals. Google turns up a lot of real estate seminars and make money schemes, which makes me believe that maybe this isn't the greatest idea after all.
I know the answer to this question is probably "lawyer up beforehand", which is a stellar idea no matter what. But first, I'd like to know is if it's a waste of time to pursue looking for one of these homes in the first place. If it's feasible, I really need some good, legitimate resources to understand how a land contract (or lease with option to buy) should be structured and how it works and what I should be asking if I decide to go this route.
Any good or bad personal experiences are welcome, too. Also, if it matters, the state is Indiana.