Some people who buy a home take a loan from the bank or other lenders. The seller charges in full for the property, and the lender takes a security interest called a mortgage. It can be difficult to obtain a loan from a bank, especially for those with low incomes. There may be no way to save enough for your down payment. For those who can come up with a down payment, getting approved for a loan can be a big problem. A bank may not be willing to make low-cost home mortgage loans.
Many people who do not get a home loan buy a home on a contract. This involves the owner and the buyer entering into a legal agreement. Most buyers move into the home and pay the owner each month, with each payment counting toward the purchase of the home. Buying a home on a contract may be the only way many Iowans end up owning a home. The following information focuses on a few aspects of buying a contract home.
Selling a home on contract can be just one way around the legal obligations of being a homeowner. By law, the landlord has to provide essential services such as heating, electricity, hot water, etc. The landlord must also keep the home safe and habitable for the tenant. The seller who sells by contract does not have to do any of these things because he is not considered a landlord. The buyer in the contract must realize that he or she does not receive the protection that the law grants to tenants, nor do they have the same rights as people who buy a property through a credit institution. Here are other important areas to consider:
It is important to understand the terms of any contract before signing it. This is especially true when it comes to the largest purchase for most people. The contract sets out details such as the purchase price, the interest rate, who will pay the taxes, and how long the contract will last. Some home contracts include a “balloon” payment. This means that after the buyer has been making payments for a certain number of months or years, all the rest of the purchase price is due at once. This large payment is the “balloon”. A five-year balloon is common, but it could be any period agreed upon by the buyer and seller. Buyers should be wary of a contract with a balloon that they cannot handle.
Expected repair and maintenance
Although the contract buyer does not have a legal title until the last payment, the buyer is the owner of the home. If the furnace shuts down in the winter, or the roof leaks, the buyer must pay to have the problem fixed. If the buyer later breaks the contract for nonpayment, he or she could end up paying for a new furnace or roof that will keep the house. This makes it especially important to look for a house in good condition that will not involve more repair costs than the buyer can handle.
What can happen in the case of missed payments
Many contract sales of homes have a “sunset clause.” This means that the seller does not have to go to court to execute the contract and get the house back if payments are lost. The seller only has to send the buyer notice if there is a default. The notice gives the seller thirty days to deal with the default by paying what was owed to the seller. If the buyer does not take care of the default, he loses the house and all of his payments to the seller. Then the buyer must also leave the home or the seller can evict the buyer in as little as two weeks. This forfeiture process is much faster than the foreclosure process when a mortgage buyer defaults. If there is no forfeiture clause in the contract, the seller must execute the same as when there is a mortgage.
The contracts for the sale of the land were scheduled to be entered in the admissions clerk’s office. This is so anyone who wants to know who owns the property can find it. But sometimes, the seller does not register the contract. Then someone else can buy the property. As a result, there may be issues about who owns the property.
If it seems that buying a home on a contract may be risky, it is also true that the buyer of the contract has some protections under the law. All real estate contracts made after July 1, 1998, must be registered with the county recorder’s office within 180 days after signing. If the contract is not registered within 180 days, the seller of the contract cannot lose the contract, but you must file a foreclosure action as if the house had a mortgage. And, the seller of the contract is subject to a fine of one hundred dollars for each day beyond the one hundred and eighty requirements. The county attorney is supposed to process the case and any money received is going into the county general fund. Too, If the seller of the contract is a person who has sold four or more properties in a contract within the last 365 days, the contract must be registered within 45 days.
Beware of liens on the property
When looking into a house to buy from you on the contract, it is a very good idea to have to do a title opinion. This will check for pending liens against the property. A “title opinion” (“a title review”) is a document prepared by a lawyer, who has checked the “abstract” (a legal record of the property) if any liens have been recorded against the property. The opinion also addresses other issues such as unpaid tax installments. If people are sued and a lawsuit is filed against them, the lawsuit is a “lien” against any property they own or buy after the lawsuit.