A land contract or contract for deed is a type of seller financing. Under a land contract, you get control over the property in exchange for making payments to the seller. The seller holds on to the ownership of the property, however, and doesn't give it to you until you fulfill the terms of the contract. Sometimes, the contract has a balloon provision that requires you to refinance it. Luckily, as of the date of publication, Fannie Mae, Freddie Mac and the Federal Housing Administration program will all generally treat land contracts as existing mortgages for the purposes of refinancing.
Pre-qualifying is a relative informal process by which you get a lender's estimate of what type of loan you might be able to get. Pre-approvals, on the other hand, involve a lender's formal review of your credit and income to not only give you a quote but to offer more assurance that you'll actually get your loan when the time comes. When you are refinancing, however, pre-qualifying becomes less necessary and pre-approval is a non-issue since you are already in the house. The main consideration is to get the mortgage so that you can replace your land contract in time.
Lenders have leeway in how they judge land contract transactions for refinancing. The Federal Housing Administration mortgage program looks at the age of the land contract. For contracts less than a year old, it will judge how much it should lend based on the lower of the property's appraised value or the original purchase price. In addition, if you got cash back as a part of the transaction and the contract was made less than 12 months ago, the FHA can cap its refinance loan to a maximum of 85 percent of the property's value. You will also need to have a copy of the contract for the lender to review.
Choosing a Loan
One of the most important parts of pre-qualifying with a refinance mortgage lender is to shop around. As long as you start the shopping process well in advance, ideally months before your contract's expiration date, you should have the opportunity to have multiple lenders compete for your business. When shopping around, look at all of the terms of the loan instead of just the interest rate to find the best deal for your land contract refinance.
Pre-Qualifying for a Refinance
Refinancing your land contract usually will be similar to getting a new mortgage or refinancing an existing one. Your home will probably be appraised and you will also need to document your ability to pay back the loan. This process usually involves having your credit checked and providing proof of your earnings and of any savings that you have in the bank or in other accounts.
- Freddie Mac: Freddie Mac Refinance Programs
- Freddie Mac: Updated Mortgage and Appraisal Requirements in Guide Bulletin 2011-25
- Fannie Mae: Selling Guide -- Fannie Mae Single Family
- HUD: HUD 4155.1, Mortgage Credit Analysis for Mortgage Insurance
- CFPB: What's the Difference Between Being Prequalified and Preapproved for a Mortgage?
- Bankrate: Not Comparing the Real Rate
- Rockland Trust: The Refinance Application Process
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- How to Refinance a Land Contract to a Conventional Home Loan