What is A Land Contract, and is it A Good Idea in Ohio?

Buying real estate on an individual contract can be a difficult decision when all factors are not considered in a comprehensive manner before making the agreement final. There are indeed some advantages and disadvantages when entering into a land contract transaction, and sometimes there can be consideration loopholes for the seller that the buyer does not realize without legal evaluation and advice regarding the terms. Many states have specific laws pertaining to contracts that can also impact the agreement after it is signed. Ohio is just such a state, with a requirement that buyers are practically only "tenants" for the first five years or when 20% of the total amount has been paid. Details matter significantly in a land contract transaction.


Aside from Ohio law that gives a distinct advantage to the seller during the initial stage of a land contract, there are also other disadvantages. One example of vulnerability is who pays for damages to the property before title ownership is transferred. Insurance maintenance could be a buyer responsibility, and calamities can happen. Another issue is property tax liability, which also is typically a responsibility for the purchaser as well. One of the conditions involving the first five years of payments is also that missing even one payment can result in immediate eviction if the seller takes the case before a judge. Sellers are not required to file a full foreclosure until after the first five years is completed or 20% of the property amount has been paid.


One of the first advantages of purchasing a property on a land contract is that no credit rating is necessary. The only requirement is seller approval of the agreement. Another potential advantage is not having to make a significant down payment. While this is not always the case, those who do make a payment could possibly pay 20% as a down payment, effectively making the land contract a mortgage being provided by the seller. This can be a particularly effective arrangement for buyers who are financially solvent and will have no foreseeable problems meeting the payment schedule. Depending on how the contract is structured, some buyers make annual or quarterly balloon payments as opposed to a monthly payment. In addition, a significant down payment can also shorten the amount of time that an immediate eviction is not available for the seller in the event of failure to meet the payment schedule in a timely fashion.

Regardless of the conditions imposed in any land contract, it is essential to have the agreement prepared or analyzed by a real estate legal professional who can identify potential loopholes or limits in consideration for all involved parties. Sellers should always prepare a contract that gives them leverage in protecting their property, and buyers should be aware of all responsibilities outside meeting all payment obligations. A land contract is very similar to a mortgage in the respect that they typically take an extended period of time before a payoff is complete and knowing all obligations during that period is vital to successful contract completion.