How to Refinance Land Contract?

 

Land contracts are great. Especially for folks in unique scenarios and don’t meet traditional lending guidelines, buying a house on land contract can often be a great alternative to renting. The problem is that most land contracts have a requirement that the home is refinanced within 3 to 5 years. Let’s take a step back for a second though.

What is a land contract?

A land contract is a private loan between the buyer and seller. The seller acts as the mortgage lender. So instead of the buyer going to ABC Mortgage Company, they get private financing from the seller. In which case the seller funds the transaction and accepts payments from the buyer for the duration of the loan. Borrowers seek homes for sale on land contract because they know they have unique circumstances.

Here are some reasons someone might seek to buy a home on land contract:

  • Recent bankruptcy, foreclosure, or short-sale
  • Self-employed borrowers who don’t show adequate income on tax returns
  • Foreign nationals who don’t have credit established in the US
  • Recent divorce that ruined their credit
  • The property they are buying may be unique, and might not have any acceptable comparables

​Steps to a successful land contract refinance:

  1. Make sure the land contract gets legally recorded. It’s not expensive, and it’s pretty easy. If the title company didn’t have the land contract recorded with the county when you bought the home, it’s not the end of the world. Call the county recorder’s office, or register of deeds office. Tell them you need to get your land contract recorded, and they will point you in the right direction. In order for a lender to perform a refinance of that land contract, there needs to be proof it was recorded (preferably when the land contract was originally executed).
  2. Make your payments on time. I can’t stress enough how important it is to not have any late payments on your land contact in the most recent 12 months if you’re looking to refinance. Having even one late payment can result in denial, or a requirement to have more equity in the house in order to make an exception for refinance approval.
  3. Keep records of everything. Do NOT make your land contract payments in cash. Pay by check or auto withdrawal to the land contract holder. If you pay your land contract payments in cash you might as well pay with happy thoughts and smiles. It’s extremely difficult to track the exchange of cash, and of course having the ability to track and verify everything on a refinance is key.
  4. Work with a lender who offers portfolio loans. Even if you think you might be eligible for traditional financing when its time to refinance you land contract, working with a portfolio lender will only set you up for success. Reason being is that there are so many moving parts in a mortgage approval. If something is discovered half way through the refinance process that makes your loan deniable on traditional financing, then you have a chance to get it approval on a portfolio loan. It’s a plan B, plain and simple. Heaven forbid something goes wrong, you don’t want to have to start from scratch with a new lender who offers portfolio lending, and have to pay for an appraisal all over again. You might as well start with a lender who offers traditional lending (conventional/FHA/USDA/VA) as well as portfolio loans.
  5. Shoot me a message and ask how I can help. If I am unable to assist, I can probably point you in the right direction. At the very least you’ll walk away with a plan on what to do to set yourself up for success.

Looking to invest in land or refinance a land contract Shoot me a message and ask how I can help. If I am unable to assist, I can probably point you in the right direction. At the very least you’ll walk away with a plan on what to do to set yourself up for success.

 

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