How It Works
LAND CONTRACT : TERMS
Length: We usually set the length of each contract at 2 years. This seems to be
the length of time that works best for most people. It allows you the needed
time to build and/or fix credit problems.
Down Payment: In this market most sellers are looking for a down payment of
between 10% and 20% of the purchase price of the property. The down
payment goes directly to reducing the principal balance you owe on the
property.In the event that you do not refinance the principal balance within the
term of the agreement (with a new mortgage or with the seller), this amount
would be non-refundable.
REMEMBER**** If you do not have the 10% to 20% for a down payment. You
can qualify to outright purchase a home with an FHA mortgage for as little as
3.5% down payment. A minimum credit score of 620 is needed. Contact us for
Monthly Payment: Is just like a traditional rent payment you would make to the
seller. However, in the case of a Land Contract it consists of principal, interest,
taxes, insurance and in some cases a monthly association fee. The monthly
principal portion goes to reduce your total principal balance you owe on the
Refinance: Once you are in a position to qualify for a traditional mortgage,
anytime within the length of the agreement, you would go to a mortgage
company and refinance the remaining principal balance you owe the seller.
The seller will receive a payoff from your new lender and would no longer be
involved with the transaction.
LET'S SEE HOW IT WORKS... LAND CONTRACT SCENARIO
Lets put the numbers to the terms and conditions so that you can see how this
works... Meet Jack & Jill (buyers) and Sally & John (sellers)
Jack & Jill (buyers) at this time cannot qualify for a mortgage. However, they do
not want to just throw away their monthly rental payments.
Sally & John (sellers), have a house they had listed for six months with no one
interested in purchasing. They want to move to a smaller house in a town 20
miles away so they call Blue Fence and agree to a "seller financing" listing.
With the assistance of their Blue Fence agent, Jack & Jill (buyers) find Sally &
John's (sellers) house listed for $250,000.
Jack & Jill (buyers) make a down-payment of $25,000 at the time of signing the
option purchase contract. On the 1st of the month, when they move in, they
make the first month's payment of $1,748, consisting of the following:
Sally & John (sellers) are able to purchase a new smaller home with the
assistance of their Blue Fence agent.
Two years go by, Jack & Jill (buyers) have made their payment on time, every
time. In the mean time they have worked to build their credit score. They have
been approved for a home loan on the property and refinance the remaining
Jack & Jill (buyers) have just closed on their very own home! and Sally & John
(sellers) just sold theirs!
The purchase price of the home was $250,000. Their principal balance was
deducted by the $25,000 down payment and 2-years worth of monthly principal
payments of $6,233. Jack & Jill (buyers) refinanced the principal balance of
around $219,000, which in most cases make their new mortgage payment the
same as the previous monthly payment.
Jack & Jill (buyers) were able to build equity while making what seemed to be a
rental payment. Sally & John (sellers) were able to collect monthly rent to pay
their mortgage and expenses all the while moving on with their lives.
Everyone benefited from the Blue Fence "Rent to Own" program.
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