How to Sell a House on a Land Contract While Still Paying the Mortgage

by William Pirraglia, Demand Media
    Land contracts can help sellers sell and buyers purchase homes.

    Land contracts can help sellers sell and buyers purchase homes.

    In many U.S. states, homeowners are allowed to sell their property using a land contract. Typically, when homeowners have problems selling their homes and buyers have trouble making down payments or getting standard mortgages, a land contract can help both sell and buy real estate. Land contracts provide for a transfer of ownership at a future date and, therefore, are a form of seller financing offered to the buyer. There could be problems with the homeowner's mortgage lender, however.

    Sell a House Using a Land Contract

    Step 1

    Find an interested buyer who is having trouble making the required down payment or qualifying for a mortgage, because of credit or income, for a bank mortgage to purchase a home. Also called a "contract for deed" or "installment sales agreement," land contracts typically appeal only to those buyers who cannot complete a standard home purchase using a down payment and mortgage loan.

    Step 2

    Agree upon a total price for the home. Just as with a normal real estate sale, the buyer and seller must agree upon a price before completing the terms of a land contract. Unlike a typical home sale, the transaction with a land contract will not be fully consummated until a future date. The buyer, however, can take possession of the property prior to the completed sale.

    Step 3

    Create a land contract with all necessary information. At a minimum, include the sale price, the amount of the monthly payment from the buyer, a balloon payment amount and date along with signature and date lines for both you and the buyer(s) to sign. If possible, have the agreement notarized to attest to its validity.

    Step 4

    Pay your own mortgage as agreed and on time. Using your buyer's monthly payment to you, pay your existing mortgage on time, avoiding any late charges or delinquency. This is critical, as mortgage lenders often do not permit using land contracts or installment sales. Should they become aware of your agreement through loan delinquency, they may have the right to consider your mortgage in default and demand payment in full immediately.

    Tips

    • Set a date for a balloon payment -- full payment from your buyer -- for as short a period from contract date as possible.
    • Clearly state that you will transfer good and clear title to the home when all land contract terms have been met.

    Warnings

    • Check your state laws regarding land contracts to be sure they are permitted and do not give buyers undue rights or legal remedies.
    • As noted, do not miss any mortgage payments or otherwise bring unwanted attention to your account, as mortgage lenders take a negative view of land or installment contracts.
    • Learn about your current mortgage loan note language, which may give your lender the right to "call" your loan, in full, if you sign a land contract.
    • Be aware that, if the buyer defaults, you may have to incur the cost and aggravation of an eviction process to recapture use of your home. In some cases, state law may give the buyer the right to retain the law if he can show payments will be made at a future date.

    About the Author

    For 34 years Bill Pirraglia served as a senior executive in the banking industry. Since 2005, he has authored articles, blog entries, tips and advice columns, SEO web copy and two published books. He specializes in personal and business finance topics, along with legal articles for clients large and small.

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