Items you will need
- Credit report
- last two years of W2s
- 30 days of pay stubs
- Proof of liquid assets
- Copy of the contract for deed
- Quit claim (if one was done)
- Copy of deed
- Copy of survey
- Declarations page from insurance policy
A land contract is nothing more than an installment contract, commonly used as a tool when owners finance the sale of real estate. Since most sellers do not wish to be in a long-term contract (such as 30 years), it is common that they have a balloon feature. This is where the note comes due in a shorter period of time than the term. (Example: A 30-year mortgage with a balloon after five years). In order to "convert" a land contract to a mortgage, you must refinance the contract with a standard type of mortgage.
Refinancing a Land Contract
Go to annualcreditreport.com and request your credit reports. This is free to you once per year, but you will have a small fee if you want the scores. If you have recently had an address change, this website may not recognize you, and you may not be able to access your reports online. If this is the case, download and fill out the form to request your reports by mail. When the reports come in, open to page one and two and view your scores. Go into each report and check for errors, duplicated accounts and out of date entries. You should dispute these by calling the customer service numbers shown on page one of each report. Request a corrected report sent to you when the corrections are made. This process will take about 30 days, and will increase your scores. Most lenders require a 640 score to approve a mortgage, so make sure your scores are 640 or higher.
Gather up all of your documents needed for a mortgage application and make a file. This includes two years of W2s, 30 days of pay stubs, two months of banking or asset statements. A copy of the deed is helpful, even though it isn't in your name. Get the survey (lot dimensions) if available and a "quit claim" deed from the seller if available. This should be recorded in courthouse records. You will need the declarations page from your homeowners insurance policy.
Call your favorite lender or mortgage broker and explain that you have a land contract (aka, contract for deed) and need to refinance it. He will know what it is and will schedule an appointment for you. Meet with him at the appointed time. He will take your application information, and pre-qualify you for the best mortgage available, then pull a tri-merged (three credit bureaus and scores combined in one report). He will be able to run a preliminary automated underwriting report (Desktop Underwriting), which will approve the loan, pending an appraisal and any documents or questions that may be missing. Your file will now go to processing.
Allow the lender to order the appraisal. Ultimately, he will need a payment for the appraisal, so be sure to supply it when needed to expedite the appraisal order. While waiting for the appointment, this is a good time to clean up yards, do touch up painting, make small repairs. Any broken glass should be replaced. Schedule the appraiser when he calls, and be there to let him in to view the home. (Meanwhile, your lender will have ordered title work on your property so you can close without any legal issues).
Stay in contact with the lender, who will let you know the property value when the appraisal is complete.
Finalization of the file will be done, and the insurance company will be contacted to update the information. The file is submitted to underwriting (for final approval). Wait for a "clear to close" message from the lender, who will have scheduled your closing.
Attend your closing at the appointed time, sign all documents as instructed and ask about issues you may not understand. Technically, this is a refinance, so federal law requires that you wait three business days before any funds can be released to the seller. This is to allow the homeowner to decide if the loan is a mistake; if so, you are legally allowed to rescind the loan before the three-day period is up.
As mortgage financing has become more restrictive of alternative types of finance in the past couple of years, the lender may require that the seller do a "quit claim" on the property to the buyer, giving the buyer all legal control of the property. This should be done well before the beginning of a refinance transaction.
It is wise to check your credit when going into a land contract transaction. Check to see what work will need to be done well in advance of going into a financial obligation where a mortgage will be needed in the future. If you are making a down-payment deposit, and your financing does not work out, you would lose the deposit when the balloon note comes due. Additionally, you would lose any equity you may have built in the property as well.
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