Refinancing a Land Contract
You have been paying the seller directly for years. Converting that into a real mortgage puts the deed in your name and ends the arrangement.
Turning a contract into a mortgage
Also called a contract for deed or an installment land contract.
- Paying off the balance on a land contract is a documented, eligible transaction on conventional and non-agency programs.
- Where the contract was executed within twelve months before your application, guidelines treat the transaction as a purchase rather than a refinance.
- On a purchase treatment, the value used is the lesser of the total acquisition cost or the current appraised value.
- The end result is what matters: the deed transfers to you and the seller is paid off through closing.
- This is first mortgage territory. Home equity and second lien products in our guidelines specifically do not allow a land contract payoff.
- Some jumbo programs list installment land contracts among ineligible transactions, so program selection matters here more than usual.
Contract for deed payoff
Deed transfers to you
Purchase or refinance treatment
Rural and small-town properties
Conventional and non-agency
Seller paid at closing
Why The Twelve-Month Rule Exists
It decides which set of rules your transaction gets measured against.
A land contract signed recently looks, economically, like a purchase that has not closed yet. Guidelines reflect that. Where the proceeds of a new mortgage pay off the balance on an installment land contract executed within twelve months before the loan application, the transaction is considered a purchase, and the value used is the lesser of the total acquisition cost or the appraised value. Total acquisition cost generally means what you agreed to pay for the property.
A land contract that has been running for years is a different situation. The longer the contract has been in place and the more you have paid down, the more the transaction resembles an ordinary refinance, and the more the current appraised value carries the day. One investor treats land contract refinances as purchases across the board and calculates against the purchase price, so this is worth confirming for your specific file rather than assuming.
Either way, the practical value is the same. Under a land contract you hold equitable title but the seller holds legal title until the final payment. Refinancing ends that. The deed comes to you, the seller is paid in full at closing, and your payment history starts reporting to the credit bureaus the way a mortgage does.
What to gather before you start
Six things that determine whether this goes through cleanly.
A Copy Of The Executed Contract
The document itself, showing the purchase price, the payment terms, and the date it was signed. That date determines whether the transaction is treated as a purchase or a refinance.
Proof You Have Been Paying
Cancelled checks, bank statements, or a payment history from the seller. A contract that has been paid in cash with no record is the hardest version of this to document.
A Title Search
Land contracts are sometimes never recorded, and problems surface here: liens against the seller, a mortgage the seller still owes, or an unclear chain of title. Better to find that in week one.
Confirmation The Seller Will Cooperate
The seller has to deliver a deed at closing and accept payoff. Most do, but a seller who liked the income stream can be a complication worth identifying early.
The Right Loan Program
Home equity and second lien products in our guidelines do not permit a land contract payoff, and at least one jumbo program lists installment land contracts as an ineligible transaction. This has to be a first mortgage on a program that allows it.
A Current Appraisal
Whether the transaction is treated as a purchase or a refinance, an appraisal establishes what the property is worth now. On a contract signed years ago, that number is often far above what you agreed to pay.
Hear From Homeowners Like You
Frequently Asked Questions
Questions about converting a contract for deed.
An arrangement where you buy from the seller directly and pay over time. You take possession and hold equitable title, but the seller keeps legal title until the contract is paid. It also goes by contract for deed and installment land contract.
It depends on when the contract was signed. If it was executed within twelve months before your application, guidelines treat the transaction as a purchase. Older contracts are generally handled as refinances, though at least one investor treats them all as purchases.
On purchase treatment, the lesser of your total acquisition cost or the current appraised value. That means the price you agreed to in the contract can cap the value used, which is why the twelve-month timing matters.
It is a complication, not necessarily a barrier. A title search will show what is actually recorded against the property. Unrecorded contracts are common and are usually resolved at closing, but they need to be identified early.
No. Home equity and closed-end second lien products in our guidelines specifically exclude payoff of a land contract or contract for deed. This has to be a first mortgage.
It can help demonstrate a housing payment history if you can document it with cancelled checks or bank records. Payments made in cash without verification are generally not acceptable documentation.
Then that mortgage gets paid off through your closing along with the seller’s remaining interest. The title work will surface it, which is another reason to order a title search early.
Find out what you qualify for
Send us the contract, whatever payment records you have, and the property address. We will order a title search and tell you which treatment applies, what value gets used, and which programs will take the file.
Get Pre-QualifiedLand contract and contract for deed transactions are handled differently depending on when the contract was executed and which investor the loan is delivered to. Some jumbo programs list installment land contracts as ineligible, and home equity and second lien programs generally do not permit payoff of a land contract. Requirements are subject to change. Saxton Mortgage does not provide legal advice. Not all applicants will qualify. This is not a commitment to lend.