Many people in Pennsylvania who want to buy a house cannot qualify for a bank loan secured by a mortgage. In such circumstances, these buyers sometimes enter into an installment land contract with the seller. Such an agreement can offer a path to home ownership that may be unavailable due to your personal financial circumstances, but such arrangements can be a risky way to buy your home. Before you consider signing a land contract, here are five things you need to know:

Are You Getting Clear Title to the Property?

When you’re buying a home from a seller, you’d likely assume that the seller is entitled to sell the home in question. However, that assumption can lead to heartbreaking consequences if someone else with a claim or lien on the property shows up on the doorstep. A property title search examines public records on the property to confirm the property’s rightful legal owner. The title search should also reveal if there are any claims or liens on the property that could affect your purchase. In our experience, properties offered for sale via a land contract have a higher incidence of title defects, increasing the wisdom of having a title search and examination done before signing on the dotted line.

Make Sure the Owner is Paying the Mortgage

Your land contract should assign responsibility for paying expenses for the property between you and the seller. These expenses include paying the existing mortgage on the property and the real estate taxes. Many sellers have existing mortgages on their properties that must continue to be paid. You cannot send checks to the seller’s lender. The seller is the one who must continue making those monthly payments until you complete your land contract. Its important to periodically get proof that the seller is making the mortgage payments and not just pocketing your money. If the seller defaults on the mortgage, the lender can foreclose on the property and you will have no rights or means of stopping that process because the lender’s mortgage takes precedence of your rights via the land contract.

Unlike a Rental, You’re Responsible for all Repairs

Its important to understand that you’ll be responsible for all repairs and maintenance for the property. If the furnace goes two months after you sign your land contract, you’re on the hook for those expenses, not the seller. This is quite unlike a rental situation where the solution to that problem would be to call the landlord. Make sure you budget for these expenses. In addition, before you sign a land contract, ask the seller for a property condition report. In addition, you should have the home thoroughly inspected by a qualified home inspector. Ask the seller to make repairs recommended by your home inspector before you sign the contract.

The Devil is in the Details

As with all contracts, do not just simply sign whatever you are given. Land contracts are confusing. Read every bit of the land contract so that you better understand what you’re getting yourself into. By their very nature, land contracts invite a long-term relationship between you and the seller. You’re going to need to work together for several years before you will be able to complete the purchase and own the home outright. It should clearly identify the seller and buyer’s respective responsibilities for the property going forward. Disputes and disagreements are inevitable. Does the contract have enough detail that it can be used to resolve future disputes? Does it tell you how disputes will be resolved?

Know The Risks

Land contracts are a riskier way to buy your home for the simple fact that they take much longer to complete than a conventional sales agreement. In the typical real estate sale, the deal is completed and close in 30 to 60 days. The money is exchanged and the parties go their separate ways. The time lapse between signing and completion associated with a land contract makes it possible that lots of problems can happen. Some of these include: the seller failing to pay the mortgage on the property; the seller is unable to complete the sale at the end of the term due to death, disability or simply refuses to cooperate; an unrelated judgment is entered against the seller, causing a lien on the property that must be resolved before the buyer can obtain clear title. These are only a few of the problems that make land contracts risky ventures.

Do you need a Real Estate Attorney?

The only way to know if a property really belongs to a seller is to have a title check performed. You will also want to know if the home has any second mortgages, liens or other encumbrances on the seller's ownership of the property. Whether buying from the seller themselves or through a realtor, hired by the seller, your interests are not being protected. Hiring a reputable real estate attorney to walk you through the land contract before you finalize the purchase can save you a great deal of stress and money.

Is a Land Contract Right for You?

When buying a home, you have many choices for financing if you have stellar credit, a solid viable income, and a down payment. However, in today's mortgage market, if you are missing the key piece, 'stellar credit', acquiring a loan may be difficult for some who are buying a home. If you have their other two pieces of the equation, solid income, and a down payment, a land contract may be an option for you when buying a home.

The experienced real estate attorneys at Fiffik Law Group are here to protect your rights and help you do your homework before signing a land contract.