Believe it or not, buying Owner Financed Land is much more common than you might think. In this complete guide, you will learn how to purchase owner financed land, how to find it and we will even address the most common questions buyers have about the process.
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How does owner financed land work?
It’s really quite simple. Here a short guide to help you:
- The seller determines the down payment and the monthly payment amounts.
- You make the down payment.
- The seller will create the required documents and you will sign them electronically.
- Once signed, you can start enjoying your land.
It really is that simple. One a recent Facebook Live video, I spoke with a land seller about how simple the process really is. Click here to watch the video (the conversation I’m referencing starts around the 1 minute, 50 seconds mark).
Why would a seller offer to sell the land with owner financing?
The land market is kind of broken, here’s why.
In most real estate transactions, there are some key players that help keep the market moving. These key players are the realtors and the banks.
In most land transactions, the banks don’t participate. Banks see land as a risky real estate transaction, they don’t really want to finance it and if the loan amount is less than $50,000 or even $100,000, they have no desire to hold a mortgage on the property.
Fact – banks don’t create small mortgages, they want homes and larger real estate deals. So without bank financing, the sellers of these properties offer owner financing in order to help provide liquidity to the market.
If you would like to read more about the challenge of getting a small mortgage, this article is a great explanation [link].
Why not just get a personal loan from a bank?
Using a personal loan to buy land is a great option, however, you will likely need a minimum credit score of 610 to 640. And since most sellers will offer to owner finance the land with no credit check and probably no interest, getting a personal loan may not be your best option.
Do I need credit to buy owner financed land?
In most cases, no.
There are some sellers who will ask to perform a credit check, but this is not often the case.
Even if it is, you are likely not to be affected by a low credit score.
The best practice is to ask the seller what their requirements are and then discuss your situation with them. As mentioned above, the seller is simply looking for a way to keep the property moving to you.
What documents are used in an owner financed land transaction?
Typically the seller will prepare three types of documents, a Land Sale Contract, a Promissory Note, and a Purchase Sale Agreement.
Here is a quick summary of the three of these documents before we go into each of them further.
The Purchase Sale Agreement obligates the seller to sell the land and the buyer to buy. The Promissory note says that the buyer will pay the seller for the land, it’s a promise to pay. The Land Sale Contract is the document that secures the transaction and ensures that the buyer will receive a clean title at the completion of the payments.
Let’s break these documents down even further.
What is a Land Sales Contract?
During a typical cash or bank financed transaction, the buyer of the property will receive a deed when they close on the property. Since the owner is financing the property, you typically won’t get the deed in your name until all the payments are made.
In this case, the land sales contract will be the stand-in for the deed, it basically says that if you make all the payments you’ve agreed to on the promissory note, then you will be provided with the deed at the end of payments.
What is the promissory note?
The Promissory Note is an agreement between you and the seller of the property, it basically layout the commitment you are making, and it basically says that you promise to pay each month on time the specified monthly payment. In most of these notes, there are no pre-payment penalties.
The note also outlines other fees that you might be subject to, such as interest charges, points, and even late fees.
The promissory note also explains the process of what happens if you are late on your payments, when the notice of default will be sent, and how many days you have to cure the default.
The cure period is important because it allows you a period of time to be notified and to make the required payments in order to avoid losing your land.
Cure Period example – Recently on an owner finance land contract, the buyer (Mr. Doe) would mail his monthly payments and pay with USPS Money Orders. His note payment got behind and he was sent a notice of default with a 35 day period to cure. This notice came as a surprise to Mr. Doe because he mailed his payments every month, but as it turns out, a couple of the payments were never received, so Mr. Doe’s account appeared to be late.
When he received his notice of default, he contacted the seller and explained that he mailed the payment every month, they were able to identify the issue and Mr. Doe had the money orders reissued. Without this cure period, Mr. Doe could have lost his land.
The beautiful thing about buying land with owner financing is that most sellers are very flexible, if for some reason you are late on your land payment, if you communicate with the seller, they will likely work with you to resolve the issue or to modify your payment plans.
What is a Purchase Sale Agreement
This agreement simply outlines the terms and conditions of the sale that you as the buyer and the seller mutually agree upon. The main highlights of this contract are the purchase price, financing terms, receipt of your down payment, and any guarantee in writing. Without this agreement, there could be some misunderstanding of the terms you and the seller have agreed upon and we certainly know that the key to any good relationship is excellent communication without ambiguity.
Can you build on my owner financed land?
Great question, that is really up to your seller. Since the seller still owns the land until you pay it off, it’s really up to them. Most will not have an issue if you want to build or access the land.
Most land sellers will allow you to access the property and use it while you are making monthly payments.
However since the seller is functioning as the bank in this transaction, it really is up to them. Each seller will have their own view of the risk.
If you have questions you are encouraged to speak to your seller directly about how they handle this aspect of the agreement.
How can I find owner financed land?
Finding land with owner financing is really easier than you think. Here are 3 resources that will help you.
Searching is very simple, you can search from the homepage for the property you want or you can do a detailed search getting down to even the county level.
Craigslist.org – you know Craigslist, but did you know they have a section for land? Here’s a tip, go to the Craigslist site for the area you are searching for and then go to real estate for sale
Then, on the left side of the screen, under housing type, choose Land and then update the search.
Then start searching for the land you want.
Facebook Marketplace – Like Craigslist, Facebook marketplace is also a classified resource to help you find the land you want.
While Craigslist offers the ability to drill down to land, Facebook Marketplace will require you to actually search as shown below.
Notice in the search box on the left, we searched for “land owner financing”
Can I buy owner financed land through a Realtor?
It is possible to buy land through a Realtor with owner financing, however, you’re probably going to have to talk to a lot of realtors to find a seller who is willing to do it.
Here is a shortcut that might help you on your search.
- Go to Google.com
- Type into the search box, “possible owner financing” site:realtor.com
You can further zero in on a more specific area, like a county, by adding the county name into the Google Search box, as shown below.
In this example we are looking for land in Pasco County Florida, and while we did find properties for sale with owner financing, most what we found were home and mobile homes for sale with owner financing. On Platforms like Realtor.com, it’s rare to find owner financed land, but it is possible.
You can use this example on other websites as well. For example, in our example we used the term, site:realtor.com, however, you can replace realtor.com with whatever site you want to search.
Next Steps to buying land!
It’s time to take action to find and invest in the land that you want. There is no reason to keep putting it off, now that you know how to buy owner finance land.
Good luck in your journey and if you have questions not covered in this guide, please let us know.