Can I Negotiate a Land Contract Loan?

Can I Negotiate a Land Contract Loan?
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There's an adage that everything in real estate is negotiable, and it's true. Whether you're looking to buy a property on a land contract or you have someone making contract payments to you and you'd like to make a change, all that you have to do is to ask. If the change is favorable for the other party, most likely, they'll agree to it.

Land Contract Basics

A land contract, also known as a contract for deed, is a type of seller-financing. In a land contract, the buyer moves into the property, but the seller holds on to the legal ownership. The buyer makes payments to the seller just like she would with a loan. Over time, the contract either gets paid off or a balloon comes due, requiring the buyer to refinance it. In either case, the buyer then gets the legal title to the property.

Purchasing the Property

At the initial purchase, the contract gets set up. At this point, the buyer and seller can work out rates and terms that work for them. For instance, if the buyer wants to have a minimal down payment, he may agree to pay a higher interest rate for the contract than he would for a loan. On the other hand, the seller may request a higher purchase price since the buyer is saving the expense of sourcing a mortgage.

Balloon Renegotiations

Since many contracts have a balloon provision, it can be a prime time for renegotiation. Typically, this happens when one party wants to extend the contract. Sometimes, sellers haven't figured out a plan for what to do with the money that will come from the balloon. This can create an opportunity for the buyer to renegotiate an extension on terms that are favorable to him. On the other hand, if the buyer needs to extend because he can't get a mortgage, the seller might demand a higher interest or other concessions from the buyer who could otherwise lose his equity.

Basic Negotiating Principles

If you end up in a situation where you need to negotiate your land contract, it's wise to remember a few basic principles of negotiating. The first is to know what's important to you and what isn't. For instance, if you don't have a lot of money to put down and you think it'll take you a while to be able to qualify for a mortgage, getting a long contract with a low down payment is probably more important than getting a low interest rate. Second is to remember that a negotiation is a give and take -- you'll have to give something up to get something. Finally, negotiate for more than you want so that you have room to compromise. For instance, if you're a buyer and you want a loan at 5 percent, ask for one at 4.25 or 4.5 percent so that you can give up a bit and get what you want.