Ten things to consider when buying a home on Land Contract in Michigan!
You may have heard that buying a home on a "Land Contract" is the way to go.
Before you decide to narrow your home search to those sold on Land Contract terms, there are a few things you may want to consider:
1.) Many times a Land Contract purchase is far more expensive for the buyer than obtaining a mortgage.
2.) Generally, Land Contract sellers will require at least 10% of the sale price as a down payment, and some require 20% or more, (whereas, if you can get your credit score up to qualify for a Rural Development loan, you may be able to get a true $0-down loan!)
3.) Frequently, a total pay-off, or "balloon payment" is required by the seller in 3-5 years, meaning you will have to qualify to obtain financing by that time from someone else. Will your credit situation be repaired soon enough? If you cannot do the financing when required, you could then lose the home, and every dollar you have put into it so far.
4.) Many buyers who have been turned down for a mortgage may be able to qualify within a year with credit coaching - especially first time buyers who are simply lacking a credit score standing to qualify for a loan.
5.) Most Land Contract sellers are going to research your credit information just like a mortgage company will, and will not sell to someone who seems to be a risk.
6.) As this is written in March, 2015, if you obtained a mortgage at 4%, as opposed to a Land Contract at 8%, just think what that would add up to in 5 years! Not only would you be paying a much higher monthly payment, but your balance in five years could be tens of thousands of dollars higher than if you had financed with a mortgage.
7.) Some buyers with no hope of improving their credit situation, may find a sympathetic seller willing to take the risk and sell to you anyway, but they are few and far between.
8) Homes that can be purchased by Land Contract are only a few, as most homeowners must pay off their mortgage when they sell their home.
9) Many homes available on Land Contract have an issue that prevents them from qualifying for financing, and you may not discover the reason until you attempt to sell the home later. (For example, a building over the property line, improper access to the property, septic built too close to the well, etc.)
10) If you default on a Land Contract in Michigan by missing a payment, you could lose your home very quickly. Land Contract sellers do not go through the foreclosure process that banks do... it is a very quick process bound by the terms in your Land Contract.
If you would like to see a copy of a blank Michigan Land Contract, I can email a copy to you.
Any other questions? Send me an email.
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