Have been looking at a farm that a guy is willing to sell through owner financing. We have discussed all the terms if I were to go through with it but it makes me a little nervous when you dont always know the right questions to ask. Anyone have experience with buying ground like this? Anything I should be looking out for or asking about? I was going to sit down and talk with an attorney as well.
You're obviously going to have to have a contract drawn up with a payment schedule.
Lawyers do this stuff all the time and should be able to cover all the bases for both parties.
One thing that immediately comes to mind that may not be obvious is to talk about & put in the contract what happens if either party dies. Often times what will happen if the person you're buying the land from would die is that you will be required to pay the balance of the contract in full to the estate. You can also have it set up where you finish paying the contract to the estate, but oftentimes the heirs will want payment in full.
Regardless, discuss this with the landowner and if he wants to set it up so that the balance is payable in full to the estate, you will need to have a plan B on the backburner to get financing from another source.
You would also need to figure out what you would want done should anything happen to you.
Good luck & hope everything works out well for you!
Lawyers do this stuff all the time and should be able to cover all the bases for both parties.
One thing that immediately comes to mind that may not be obvious is to talk about & put in the contract what happens if either party dies. Often times what will happen if the person you're buying the land from would die is that you will be required to pay the balance of the contract in full to the estate. You can also have it set up where you finish paying the contract to the estate, but oftentimes the heirs will want payment in full.
Regardless, discuss this with the landowner and if he wants to set it up so that the balance is payable in full to the estate, you will need to have a plan B on the backburner to get financing from another source.
You would also need to figure out what you would want done should anything happen to you.
Good luck & hope everything works out well for you!
JNRBRONC
Well-Known Member
I have never bought land on contract, so I probably don't know what I'm talking about here, just a few things that I have questions about.
He maintains possession of the property throughout the term of the contract, only transferring the deed when the final payment is delivered. You would not be eligible for a landowner tag on such a property (you don't own it, you don't have a tax id to register it with the DNR and you don't have final say how it's operated/farmed).
Also, what if doesn't pay taxes and a tax lean is placed on the property?
Is it written into the lease how the land should be maintained until the deed is transferred? What is the recourse if he doesn't uphold his end? (logs it the year before the contract expires)?
When filing taxes, you get mortgage interest deductions and I would guess you should be able to do that on a contract buy as well, though not sure how. Maybe a CPA could offer advice on if/how that works.
Just looking at worst case scenarios here, as I'm sure that the majority of these types of land purchases go off without a hitch.
He maintains possession of the property throughout the term of the contract, only transferring the deed when the final payment is delivered. You would not be eligible for a landowner tag on such a property (you don't own it, you don't have a tax id to register it with the DNR and you don't have final say how it's operated/farmed).
Also, what if doesn't pay taxes and a tax lean is placed on the property?
Is it written into the lease how the land should be maintained until the deed is transferred? What is the recourse if he doesn't uphold his end? (logs it the year before the contract expires)?
When filing taxes, you get mortgage interest deductions and I would guess you should be able to do that on a contract buy as well, though not sure how. Maybe a CPA could offer advice on if/how that works.
Just looking at worst case scenarios here, as I'm sure that the majority of these types of land purchases go off without a hitch.
jclaws
PMA Member
i believe if you are buying the land on contract you would still be able to get a tenant tag.im sure he would give you the parcel number.if not they are online. also if you are buying it on contract i believe you do have the say so of the place.
where i work they are buying the building on contract and we have to pay the taxes on the building,and we have the say so.im sure it will be in the contract.
I have never bought land on contract but I have bought several houses like that.In most cases you would be paying taxes and able to do what you want while making your payments.You would also be allowed any landowner tag you want.Its no different than having a lean on your land with a financial institution.Your contract would be binding even if the landowner(lean holder dies) you would then make your payments to whoever is put in charge of the trust.
I know a few people that are doing the same thing.One has really never taken a cent out of HIS poket to make the payments.The payments are taken out of CRP checks and cash rent for corp land portions of the land.It can be very beneficial to buy land from a owner.They may be willing to set up like by yearly payments so you can pay when CRP checks come or after harvest.Just something to look at.
I know a few people that are doing the same thing.One has really never taken a cent out of HIS poket to make the payments.The payments are taken out of CRP checks and cash rent for corp land portions of the land.It can be very beneficial to buy land from a owner.They may be willing to set up like by yearly payments so you can pay when CRP checks come or after harvest.Just something to look at.
KSHUNTER
PMA Member
Buying land on contract is done all the time, you will have all the responsibilities of the landowner, i.e. paying taxes and so forth.
Here is what I would do:
1) Get a contract, there are many contracts out there on line some are free and some have a fee, but for $100 or so a lawyer will draw one up for you and really the landowner should split the cost because it is protection for both of you.
2) Then go to a Abstract company and get title work done, this is a must. If you do not get title work done you don't even know if the guy has clear title to the land. Not doing title work could expose you to a lot of risk. Title work will let you know who the owner is, that he has the right to sell it, if taxes are current, there is no liens or the property, and so forth. Cost is usually split half and half.
3) Go to a bank and set up an escrow account. This will have a small monthly fee, but the will keep track of the payments, give the seller his monthly installments, and keep the signed deed in a safekeeping vault. Once the loan is paid the deed would be given to you. Having an escrow set up will also eliminate conflicts arising from miscalculated interest, ect.
Here is what I would do:
1) Get a contract, there are many contracts out there on line some are free and some have a fee, but for $100 or so a lawyer will draw one up for you and really the landowner should split the cost because it is protection for both of you.
2) Then go to a Abstract company and get title work done, this is a must. If you do not get title work done you don't even know if the guy has clear title to the land. Not doing title work could expose you to a lot of risk. Title work will let you know who the owner is, that he has the right to sell it, if taxes are current, there is no liens or the property, and so forth. Cost is usually split half and half.
3) Go to a bank and set up an escrow account. This will have a small monthly fee, but the will keep track of the payments, give the seller his monthly installments, and keep the signed deed in a safekeeping vault. Once the loan is paid the deed would be given to you. Having an escrow set up will also eliminate conflicts arising from miscalculated interest, ect.
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Hardwood11
It is going to be a good fall!
Contract for deed
I think a contract for deed is an excellent way to purchase land. The first parcel I bought was on contract ($12,000 down) $63,000 balance on a 10 year contact (6%) interest. Now paid off and the property is probably tripled in value??
Really no major concerns, just make sure you register the contract at the county recorders office, as long as you make the payments and do not alter the land in any major way you should have no problems.
Good luck! How many acres?
I think a contract for deed is an excellent way to purchase land. The first parcel I bought was on contract ($12,000 down) $63,000 balance on a 10 year contact (6%) interest. Now paid off and the property is probably tripled in value??
Really no major concerns, just make sure you register the contract at the county recorders office, as long as you make the payments and do not alter the land in any major way you should have no problems.
Good luck! How many acres?
Look into the BFLP if the farm is in Iowa. Other States may have similiar
Look into the BFLP before you finalize anything. You may kick yourself for not doing it...
In Iowa there is a program called the Beginning Farmer Loan Program. This is an awesome program for you and the seller. If aproved, The lender....., either the bank or the landowner has little risk as you are backed by the State via a Bond. The benefit come to the landowner in that if he holds the mortgage, his income (from the loan) is tax free. This gives you a real barganing chip to negotiate a much lower rate then you could ever get with standard financing. There is criteria you need to meet in order to qualify. You cant have owned a farm greater then 100 acres, the purchse is only bonded up to so much money.....etc.
Its worth looking into.
Good Luck - N9BOW
Look into the BFLP before you finalize anything. You may kick yourself for not doing it...
In Iowa there is a program called the Beginning Farmer Loan Program. This is an awesome program for you and the seller. If aproved, The lender....., either the bank or the landowner has little risk as you are backed by the State via a Bond. The benefit come to the landowner in that if he holds the mortgage, his income (from the loan) is tax free. This gives you a real barganing chip to negotiate a much lower rate then you could ever get with standard financing. There is criteria you need to meet in order to qualify. You cant have owned a farm greater then 100 acres, the purchse is only bonded up to so much money.....etc.
Its worth looking into.
Good Luck - N9BOW
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cedar creek
Banned
If you are talking about a lower interest rate; i believe it is set at 7% in Iowa for a land contract. That's what it was when i did my land contract 12 yrs. ago. It may have changed since then; though i doubt it. It was still cheaper than a bank, because they consider it a business loan. At that time the minum iterest for a business loan was either 9 or 9 1/2%.
Crimson Arrows
Well-Known Member
I have sold property on contract and can be very easy and is no different, as many have said, to another financial institution financing the operation. Get a quality lawyer and your set! The seller often is in a good spot as if the property is forfeited he mainatains control and will make much more in interest than one lump some.
Varies from one sell to the other but is legal and can be a good idea if set up properly.
Varies from one sell to the other but is legal and can be a good idea if set up properly.
baggin_bucks
Active Member
I have three years left on one of my places through contract. The farmer that I bought it from didn't want the lump sum do to taxes. It is a ten year contract I gave him 10% down at the time and pay him once a year. We agreed on the interest rate he took it to his lawyer and had it all drawn up. I then took the contract to my lawyer to look over. I pay the taxes and can do whatever I want on the land. It is a great option in my opinion. I have another piece that I have through a bank and do semi annual payments. I would rather do a seller financing deal than a bank just for the reason of not having to "borrow" the money from the bank. Good luck with the purchase.
cedar creek
Banned
And what interest do you have to pay?
indiegal
New Member
My Mother sold her house On Contract with a Balloon payment to be made July 2010. This Person Did NOT make the balloon payment Nor has made any payments since. My Mother passed away May 2012, just recently. Can I Take back my Mother's House?!! How do I go about this matter. My Atty. Wants to foreclose and I want the Money out of this. As I live on SSD. raising a 14 yr old son.