Selling Land Contract Interest

Interest rates on land contracts typically are higher than on conventional loans.

Selling land contract interest. Land contracts are useful instruments for sellers who are selling a home and contemplating carrying the financing for a buyer. The sale of the property in question is quicker without the banks getting involved. It gives sellers a built in income and generally a better interest rate than rates offered on money market accounts or certificates of deposit. Multiply the interest rate by the principal balance due and divide this rate by 12 to calculate current month s interest.

A land contract is a contract between a buyer and private seller for real property that has a home on it. A land contract is a form of seller financing. Selling your home with a land contract. A land contract is a written legal contract or agreement used to purchase real estate such as vacant land a house an apartment building a commercial building or other real property.

Usually land contracts are done on a 3 5 year balloon. It is similar to a mortgage but rather than borrowing money from a lender or bank to buy real estate the. Selling your home with a land contract has a lot of benefits attached to it. Any interest income a person receives when selling his home through a land contract is reported as ordinary income.

When selling a home on land contract the seller acts as the private lender. With a land contract the buyer does not get full ownership of the property. A land contract or contract for deed is a type of installment sale in which a seller agrees to sell the property to a buyer over a period of time. A commercial buyer by contrast may favor a land contract acquisition to reduce the initial amount of capital that must be invested to acquire real estate to wait for a later date to obtain an traditional loan to pay off the land contract e g if interest rates are expected to decrease or the buyer s credit will improve in the future or.

These rules don t apply to personal use property for example property not used in a trade or business. The interest rate is negotiated between a seller and a purchaser sometimes with state limits. Any part of the stated selling price of an installment sale contract treated by the buyer as interest reduces the buyer s basis in the property and increases the buyer s interest expense. Meaning the borrower makes mortgage payments on a 15 30.

The buyer provides down payment and makes monthly installment payments to the seller for an agreed upon period of time at an agreed upon interest rate. During that time the buyer makes installment payments which consist of both principal and interest.