Q:

How do you calculate a land contract?

A:

Quick Answer

A land contract calculation factors in the purchase price, down payment, insurance costs, taxes and interest rate, states Valley Real Estate, a Re-Max agency. The calculation uses an amortization schedule similar to those used to calculate bank mortgages.

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Full Answer

A land contract is a real estate transaction in which the seller provides financing and retains legal title until after all payments are made, states Valley Real Estate. The price is often higher than the price of buying a home in cash, and the repayment terms are shorter, often ending with a balloon payment, notes The Law Dictionary.

The down payment is usually 10 to 20 percent of the purchase price, reports Valley Real Estate. The balance to be repaid is the purchase price minus the down payment. The seller-lender uses an amortization schedule to determine the amount of money the buyer must pay every month, adding in real estate taxes and insurance.

A balloon payment is a lump sum the buyer pays after a specified period of time, states Valley Real Estate. The parties may agree that the seller accepts monthly payments for several years and then receives a lump sum amount to clear the purchase of the home. The interest rate is usually higher than that of most mortgage loans.

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