The Difference of Land Contracts vs. Mortgages


An olive green house with a well-manicured lawn and flowerbeds

When buying a home, protect your interests by understanding the difference between a land contract and a mortgage.

A mortgage and a land contract have some things in common. They’re both ways to purchase a home. They both require monthly payments. But a land contract comes with risks you avoid with a mortgage.

How land contracts work

Under a land contract the seller essentially becomes a lender. The buyer and seller agree to the price, terms and payment schedule.

Many deals are structured with monthly payments for a period and a balloon payment in the future. When the balloon payment is due, buyers frequently obtain a mortgage to fulfill their end of the bargain.

Risks with land contracts

A land contract can seem like a sensible path to home ownership. However, you don’t own the property until the final payment is made.

If at any point the buyer fails to meet their payment obligations, the deal is off. The property remains with the seller. The buyer has no equity.

Another risk lies in the fact that the seller is the legal owner until the contract is paid in full. If the seller has financial difficulties, they could lose the property and the buyer would be left empty-handed. Any improvements the buyer invested in would be lost as well.

When you have a mortgage, you have legal standing as a property owner—as long as you pay property taxes, avoid liens and honor your obligations with the lender (like paying on time, maintaining escrow and insuring the property).

Our mortgages make home ownership accessible

Some folks turn to land contracts because they don’t think they can get a traditional mortgage. At Consumers, our loan officers work with you to create a custom-made mortgage option within your financial terms.

To find out more about any of our home loans, just ask! Call us at 800-991-2221 and we’ll do everything possible to get you into the home you want.

Consumers helps more than 1,000 members finance land, homes and home improvement projects each year. When you need a mortgage or home equity line of credit, call us at 800-991-2221. We’re here to help you get the home of your dreams!


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