How a Land Contract Differs from a Mortgage

by Sam Webber 09/06/2020

Image by mohamed Hassan from Pixabay

A land contract and a mortgage have a number of similarities. For example, you can use either option to purchase a home Both loans must be repaid on a monthly basis.

Understanding the Differences 

A land contract is a legal agreement between a buyer and a seller. Rather than a traditional mortgage scenario with a bank, the seller becomes the lender. The buyer and seller agree on a price for the home then negotiate terms and a payment schedule. 

In many cases, these repayment terms follow a schedule of monthly payments much like a mortgage. However, a balloon payment for the remaining balance is often due within three to five years. At that time, you would then obtain a traditional mortgage to fund the remainder that's due. 

Land Contract Risks

While it can seem like a land contract would be an ideal way to secure a home, it does involve risks you need to know about. A land contract can be a way for you to close on a home if you aren't able to qualify for a mortgage that covers the full cost right away. The three to five years that a typical land contract lasts can give you time to improve your credit and increase your financial soundness. 

Before you agree to a land contract, though, be aware that the property is not yours until you make the final (balloon) payment. This means that if you make any improvements to the property during that time, you could potentially be out of your investment. You are also not building up any equity in the home during the time that the land contract is in effect. 

At any point during the land contract, your position as the buyer could be compromised. For example, the seller is the legal owner of the property until the contract has been fully paid. If they experience financial problems and lose the property, you would have no claim to it and would forfeit your payments. 

As the buyer, you are obligated to meet your payment agreement. If you don't do so at any time during a land contract, the deal ends. The property stays with the seller and you are out the money you've invested. 

Advantages of a Mortgage

With a mortgage, you must pay property taxes and honor your obligations to the lender. As long as you do so -- and avoid liens -- you have legal recognition as the property owner. 

A land contract can seem like an attractive alternative if you don't think you qualify for a traditional mortgage. Before agreeing to one, though, be sure you understand the pitfalls that could be involved. 

About the Author

Sam Webber

Call, text or email my personal cell anytime at: (904) 419-8883


Sam Webber, Realtor®


(Retired Military w/25 Years Honorable Service)

Office: (904) 834-3994

Farrell International Realty

Ponte Vedra Beach, FL 32082

Web: www.SamWebber.REALTOR

Email: [email protected]

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A retired sailor that hasn’t figured out how to slow down, Samuel Webber is a Florida Realtor and the Managing Broker of Farrell International Realty serving home buyers and sellers in Duval & St. Johns counties. He started his 25-year military career serving the United States Navy (and the United States Marine Corps) repairing medical & dental equipment and designing dental treatment facilities. During the course of his progression to senior management, he launched several adult literacy programs simply as extracurricular projects but realized the exponential value of continuing adult education and thus has made a lifetime commitment to volunteering and promoting adult learning. 

He supports the Women’s Center of Jacksonville faithfully as a volunteer math tutor assisting adults achieve their GED and educational goals. He is also a fundamental part of the Audiovisual Ministry and active Trustee Board Member at Wayman Temple A.M.E. Church.

Samuel Webber has Bachelor of Arts Degrees in both Business Administration and Technology Management from St. Leo University. He is also one of an elite few Realtors in Northeast Florida that hold both the Graduate, Realtor Institute (GRI) and the Certified International Property Specialist (CIPS) designations along with the Military Relocation Professional (MRP), Certified Negotiation Expert (CNE) and other designations. When he isn’t glued to the computer researching homes and market analyses, he enjoys skiing/bicycle riding and fishing with friends. He has 1 daughter in Georgia and he currently resides in St. Johns with his 2 doggies - Chase & Curley. You can reach him at [email protected]