This is the first in my series of three articles on Land Contracts in Michigan. This one is entitled: An Outline of Land Contracts in Michigan as any Realtor will attest that in my city of Battle Creek, we frequently get asked the question at least once a week “Do you have any homes for sale offering a Land Contract?” I thought it might be helpful to provide some information to prospective buyers on Land Contracts in Michigan.
I also have written two books on the subject which are available and can be downloaded in eBook format. The books are: ‘Understanding Land Contract Homes: In Pursuit of the American Dream‘ and ‘Land Contracts for Investors‘.
First of all, what is a Land Contract? A Land Contract in Michigan in simple terms is a form of financing from the seller of the property where the seller is willing, accepts a down payment, monthly payments and interest over a given period of time, and usually with a balloon at some point. A ‘balloon’ occurs after a specified period of time, where the final balance is either due in full, or the parties renegotiate the interest rate for another period.
Land Contracts in Michigan are considered a legal transfer of ownership, and the buyer retains all property rights, live in the house, and can even file for homestead exemption tax. The seller retains the title until the final payment is made, and then the title is transferred to the buyer. There are some conditions that would limit the ability of a seller to offer Land Contracts in Michigan.
One of these conditions is if the seller already has an existing mortgage on the home. If they do, then selling a home through land contract may not be possible, as many mortgages include a ‘due on sale clause’ in the mortgage, which restricts the borrower from selling the home under such a system. If the borrower does do this, and the mortgage company leans of it, they could require payment in full of the entire loan. Most sellers are not willing to take this risk, logically.
So the best condition for a seller who might consider a land contract is if they own the house outright, and are willing to accept a land contract proposal. On the other side of the transaction, many prospective buyers seeking Land Contracts in Michigan that I have quizzed about this are of the belief that they can just sign some papers and move in and start making payments.
Many have no savings, or funds for a down payment, and sometimes no sustainable income that they can prove that would make them a good investment risk for the seller. Often these buyers are in a poor financial condition, or perhaps recovering from one, and they are eager to accept any deal they can get, which makes them a potential target of fraud, which I will explain later in this article.
Additionally many buyers do not realize that land contracts in Michigan are often offered with high interest rates, and a sales price of the home at fair market value, as the seller’s goal is to make it a profitable venture, as they are an investor and this their business. Surprising to many prospective buyers, as a Realtor, I have taken many who were seeking a Land Contracts in Michigan and gotten them approved for financing with a local lender and gotten them into much better terms with the low interest rates on current loan programs than are offered by land contract sellers.
However, sometimes a land contract is a great deal and if it works for both parties, it should be taken advantage of. Buyers should realize that if they have poor credit, they can offset this issue if they offer a sizeable down payment to the seller, and can demonstrate a reliable income source such as pay from employment, or self employment, a pension, etc. For help with Land Contracts in Michigan, contact me at: www.michaeldelaware.com or call me direct at: 269-441-8182.