Land Contract

Brantford is one of the cheaper communities in the greater Toronto area, but for some who don't have any current property to sell to make the down payment, a piece of property in town can still be too much to afford. If you're buying into an area that is not popular and doesn't have a lot of development yet, you may be able to enter into a land contract to buy a home even if you're not able to get a bank mortgage. To find out more about land contracts, read The Basics of Land Contracts by NOLO.com.

In a normal real estate sale, the buyer borrows a lump sum from the bank and gives this money to the seller, who then hands over the deed. They buyer then pays the bank back in installments with interest added as a fee. However, in a land contract, the seller hangs onto the deed and the buyer contracts with the seller to pay for the property in installments with interest, much like a mortgage without the involvement of the bank as a middle man.

A land contract situation isn't really ideal for anyone, so it's only really used in instances where the seller is desperate to eventually get rid of the property and the buyer cannot secure a bank mortgage. However, sometimes sellers may try land contracts as a way of making money on a real estate investment, and sometimes buyers may prefer a land contract to a regular sale because they can get a better deal on the interest rate than they can get from a bank.

The major drawback of the land contract from the buyer's perspective is that the seller retains the title to the land, so if at any point they should decide to renege on the land contract and sell the property to someone who can pay them with a lump sum, you can be forced to vacate the property. If you default on your payments to the seller, you can also be forced to vacate and lose the equity you have built up through previous payments. There will also likely be a balloon payment at the end of the loan even if you keep up.

The biggest drawback from the seller's perspective is that you're not actually getting rid of the the property you're selling. You still hold the deed, which means you're still tied to the property and everything that happens on it, which can be especially annoying if you've already moved away.


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Monday, July 24, 2017