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The Risks of a Land Contract are:
While there are benefits of land contracts, there are also risks involved. At the end of the day, it’s up to you to weigh the associated benefits and risks to make the best possible decision for your personal financial situation.
- High interest rates: If you’re a buyer, this is a major con of a land contract. This is especially true at a time when interest rates are particularly low for mortgages. While the exact rate will be negotiated with the seller, it’s generally higher than normal rates due to the risk and burden being taken on by the seller.
- Dependence on the seller: Again, if you’re a buyer, a land contract requires that you place a lot of faith in the seller. This is especially true if the seller still owes money on their current mortgage. If the seller doesn’t make payments, the buyer could end up losing the home as well through no fault of their own. As a result, it’s important to negotiate a strong and detailed contract between both parties.
- Contractual and legal vagueness: Even with a contract, there’s a lot of vagueness involved in a land contract that can cause issues down the road. For the best possible contract, you may want to consult with a real estate attorney who is apprised on the ins and outs of land contracts.
What is a Land Contract ?
A land contract is essentially seller financing wherein a buyer pays a down payment on a property and continues to pay the owner a specified amount until the agreed upon sales price is reached. At that point, ownership of the property is transferred from the original owner to the new buyer.
A land contract involves negotiation and agreements between the buyers and the sellers to reach favorable terms that both sides can agree to.
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