Key Elements of a Land Contract
Key Elements of Your Land Contract
- Down Payment: A down payment must be paid in full to complete the signing.
- Loan payments: A land contract is essentially a loan and a property sales contract. “Loan payments” refer to a combination of principal and interest due each separate pay period. A pay period is typically a month but could vary.
- Full Payments made each pay period: normally include “the loan payment” as described above + any applicable late fees, and an estimated amount for property taxes. Property tax amounts are estimated because they can increase from year to year. This means that monthly payments must also increase.
- Contract term length: Every contract has a term length defining the number of payments and the amount for each payment. The length of time it takes to pay off the loan defined in the contract could be shorter or longer than what’s written based on Buyer paying behavior. Early payments are allowed and will shorten the time necessary to pay off the loan. Late or partial payments and associated fees, may lengthen the time a Buyer needs to pay off the loan.
- Transfer of deed: The signing of deed transfer documents may be scheduled after all debts have been paid, and all relevant issues between Buyer and Seller have been settled.
- The total amount paid by the Buyer: This will be a combination of the down payment + the loan amount (principal) + interest (the percent being charged for the principal loan) + any fees or unpaid homeowner related debts incurred by the Buyer over the course of the contract. A Buyer (you) may reduce the amount of interest paid and the length of the contract by making early payments and by paying more than the required contractual amount from time to time.
- No balloon payments. Unless otherwise agreed between the parties, there shall be no balloon payment in the contract. Payment terms are defined in the contract.
- Insurance Policy for Property Structure. The Buyer is responsible to find and pay for property insurance. Any policy must be created with the deed holder as “primary insured” (deed holder name is on page 1 of the land contract document). The buyer might not be named in the policy depending upon the insurance company’s practices. Buyers must fulfill certain requirements outlined in the insurance policy terms, or the insurance company won’t pay out the policy if that scenario should arise. For example, properties typically must have functioning smoke detectors and fire extinguishers installed properly throughout the home. If there’s a fire, and these things have not been properly installed, the insurance company will not issue a payment and all insurance policy money will have been wasted.
- Repairs on the property: the Seller must approve of all major changes before they commence, and may need to be involved in the planning process. Always contact the Seller to discuss your plans and expect Seller involvement. The Seller will not try to prevent good or minor repairs, but must also decide (and has the right to decide) that they are beneficial, and not a threat to the structure of the property.
- Inspections: Seller reserves the right to inspections of the property as described in attachment B. By signing the land contract, you agree to allow inspections upon request, and to coordinate with us so that such inspections may be performed.
- In Michigan, any binding terms pertaining to a property sale must be in writing – no spoken agreements shall be considered binding: Any spoken perceived agreements or promises which haven’t been stated in the land contract document, shall not be part of the Land Contract Agreement. If the Buyer believes something is missing from the agreement, they need to make it known, and resolve it with the Seller’s representatives before signing. All parties shall be bound by the signed Land Contract. If new agreement terms are desired after the land contract has been signed, both parties must be willing and able to addend the original land contract.