Generally there are two types of owner financing available to buyers of land. The first is contract for deed or “rent to own”. The most notable distinction regarding this financing instrument is that title does not pass to the purchaser until the financing obligations of the contract are fulfilled. Any improvements to the land made by the purchaser are to the benefit of the title holder, the seller.
The other financing method is the amortization mortgage loan. Usually a deposit is required and the remaining balance is paid on a periodic basis according to an amortization schedule. Payments are generally applied to interest first and then principle. Early in the schedule most of the periodic payment goes towards interest. Later in the schedule more and more of the payment goes towards the principle. Title passes to the buyer and the buyer conveys a security interest to the seller via a mortgage. As long as the buyer makes the payments according the attendant promissory note, title remains as the buyer’s. If the buyer defaults on the payments, then mechanisms in the mortgage are triggered and the property is foreclosed; title goes back to the seller.
Any improvements by the buyer are to the benefit of the buyer, the title holder. This is an important concept for those land buyers who want to build on their property before the scheduled payoff.
Currently, all of Wilderness Realty’s land listings can be financed by the amortization mortgage loan method.