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Common Differences Between Land Contracts & Rent-to-Own (Lease)

DescriptionLand ContractRent-to-Own (Lease)
DepositUsually 10-20% of price- MinimumUsually less than 3% of sales price
TaxesPaid by Buyer-CommonPaid by owner
PriceFixed price agreed toFixed price set – Must Appraise or negotiate
TermNormally 3-5 years minimum – up to 20 yearsNormally 1-3 years
TitleBuyer given Equitable Title Normally recorded with stateOwner holds Title – no change
PaymentBased on interest rate& taxes80-100% of Square Feet- Common
InterestMax 11% – Normal 7-8% – CommonNone
BalloonBalance owed after payment, taxes and interestMortgage based on appraisal at end of contract term
RebateNone25% of 1st year’s lease pay’s -Common
CreditMust have ability to pay off balloon- Good job, inheritance, etc…and a large down payment will help offset a low credit score.Normally above 500/550 credit score.
Existing MortgageMortgage contract must allow! Due on sale clause will prevent this.No transfer until closing. Mortgage
Default-BuyerLoses all deposits / PaymentsLoses all deposits & rebate, can be evicted
Recorded in CountyYes
Default-SellerUsually no mortgageCan request proof of payments if large

Common means it is seen often, but not always!
Above differences are from my experience and certainly not the same for all Land Contract sales.

Larry Williams


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