The parties can enter into a sale by land contract so that the buyer makes monthly payments directly to the seller. Benefits to sellers. The seller may also require and receive a large cash down payment.

What is the typical down payment on a land contract?

Most land contracts will require the buyer to make a down payment of 10% or more of the purchase price. Then, the seller will have to make installment payments for a set period of time. The terms can vary, but most agreements are between two and four years.

Is a land contract a mortgage?

A land contract is similar to a mortgage, but rather than borrowing money from a lender or bank to buy real estate, the buyer makes payments to the real estate owner, or seller, until the purchase price is paid in full.

What are the tax consequences of buying a land contract?

Buyer Tax Consequences. Buying a home on a land contract gives the buyer equitable title, though not formal title, to the home. The Internal Revenue Service, though, gives buyers under land contracts much of the tax deduction benefits of true home ownership. For example, a land contract home buyer can deduct any property taxes she pays on her home.

What kind of tax form do I need for land contract?

Form 6252 is also required to be used by home sellers in land contracts each year they receive payments on the contract. Land contract home buyers intending to itemize deductions report their property taxes and interest payments on IRS Form 1040 as normal.

How big of a down payment do I need to buy land?

If you’re in the market for raw land, expect to make a much larger down payment than you would on improved property, such as a lot with a house. Down payments for land loans generally range between 20 and 50 percent of the purchase price.

What happens when you sell your home on a land contract?

When you sell your home via a land contract, the buyer can occupy the property and assumes its equitable title (i.e., the right to obtain full ownership of the property). The seller retains legal title until the sale is complete. Land contract payments require special tax reporting.