How it works
A land contract — also called a contract for deed or rent-to-own home sale — hands over possession immediately while the seller keeps legal title until the final payment lands. Because buyers arrive unable to qualify elsewhere, contracts bundle two quiet premiums: a price above appraised market value, commonly 5–15%, and an interest rate above prevailing mortgages. On a $220,000 home, an 8% premium adds $17,600 before financing begins; pair that with 9.5% versus a 6.6% mortgage on the financed balance and fifteen years of extra interest pushes the combined hidden cost past $70,000 — for the identical house. The calculator prices both premiums explicitly, computes the monthly payment, and charts equity side by side: contract balances fall slower every single year, leaving less protection if life forces a sale. The structural risks deserve equal weight — buyers typically shoulder taxes, insurance and repairs before owning anything, miss statutory foreclosure protections since remedies can run through eviction, and face balloon clauses demanding refinancing on the seller's schedule. Record the contract, order independent title work, and specify conversion terms in writing; unrecorded agreements have vanished with sellers' deaths and bankruptcies.
Formula
Contract price = value × (1 + premium) | Payment = P×r/(1−(1+r)^−n) | Hidden cost = premium + interest gap vs market-rate mortgage
Tips
- Get an independent appraisal before signing — the premium is invisible without one.
- Record the contract at the county recorder; unrecorded interests lose priority fights.
- Specify in writing how and when title transfers, including payoff statements.
- Budget repairs and property tax from day one — the contract assigns both to you.
- Treat balloon dates as refinance deadlines and start qualifying a year early.
Frequently asked questions
- Is a land contract more expensive than a mortgage?
- Almost always. Contracts typically carry a 5–15% price premium plus above-market interest because sellers price captive buyers. On a $220,000 home, an 8% premium and a 9.5% rate versus 6.6% mortgage pricing adds roughly $70,000 across fifteen years for the same property.
- Who owns the house during a land contract?
- The seller holds legal title until the final payment; the buyer holds equitable interest and possession. That division matters at default — sellers may pursue eviction-style remedies faster than mortgage foreclosure, and buyers have historically lost both equity and occupancy with limited process.
- What happens if the seller dies or the house is foreclosed during my contract?
- Without recording, your claim competes with the estate's heirs, the seller's mortgage lender and judgment creditors — and can evaporate entirely. Recording the memorandum of contract, obtaining title insurance, and escrowing payments protect your interest substantially, so keep payment records and file promptly at the county level.
- Does a land contract build credit?
- Rarely. Most sellers are individuals who never report payment history to the bureaus, so years of perfect payments may leave no trace. Meanwhile missed payments can trigger forfeiture. If credit building is the goal, secured cards and credit-builder loans do the job explicitly.
- Can I refinance a land contract into a mortgage later?
- Yes, and many contracts anticipate it — sometimes with balloon clauses forcing the issue. Refinancing requires enough equity, acceptable credit at that future date, and a cooperative seller providing a recorded satisfaction. Budget closing costs twice: once at signing, once at conversion.