Land Contracts Becoming Widely Used
As we continue to work our way through the new lending regulation, one of the side effects from the changes has been vacant land lending. Obtaining financing on vacant Real Estate is more difficult now than ever before. As many potential buyers seek financing they are dissapointed to find that few lenders will loan on vacant land. Some banks will grant loans, but are bound by regulations that require high loan-to-value percentages making it almost impossible for them to provide funding for these properties. In certain areas there are alternatives to commercial bank lending, such as credit unions, that will provide financing for vacant Real Estate. Another alternative is a Land Contract.
Land Contracts are basically seller financing. In some cases though, a third party can hold the note on a land contract removing the obligation from the seller and providing financing to the buyer. Land Contracts have been in use for years, but were a small portion of the Real Estate transactions in the Upper Peninsula. In the past few years, we have seen the demand from buyer for land contract financing rise steadily. The demand for this alternative financing coupled with slow market conditions has prompted more sellers to accept offers to purchase under land contract terms.
Another recent change with land contracts has been the term that they are offered for. Most land contracts have a balloon period at the end of which the balance is due on the loan. This period was most commonly 3 to 5 years. Due to the uncertain financial climate and tighter lending regulations, we have seen a demand from buyers for longer balloon periods on land contracts. This worries some sellers, but ultimately may be the only way for a buyer and seller to put a deal together.
Northern Michigan Land Brokers has sold many properties over the year using land contracts. Our experience with this type of financing is becoming more important as the need to use land contracts becomes greater. We have been a local leader in this field for many years and can offer a great deal of guidance for buyers and sellers. If you would like further information on land contract financing.