A land contract—also known as a contract for deed, an installment land contract, or a land sales contract—is an agreement between a buyer and seller for the sale and purchase of a specific piece of land. Land contracts may consist of undeveloped land or include both land and building structures located on the land.
Land contracts are often completed with seller financing in which the buyer pays the seller in monthly payments or installments that include an agreed interest rate and a lump sum balloon payment after a certain number of years. When the buyer has made the monthly payments for the required number of years, plus any balloon payment, the seller is required to transfer the title (evidence of ownership) to the buyer, as provided by the land contract.
Land contracts may also be financed by banks or other lenders—often with traditional deed of trust or mortgage agreements. Bank and other lender loans for undeveloped land will often be financed at a higher interest rate and for a shorter term (with a balloon payment) than a traditional home mortgage, for example.
When the balloon payment to the bank or lender comes due a builder or developer may get a takeout loan to replace the existing loan—with the expectation of securing better terms (interest rate, etc.) because the land will be developed (at least in part) and the loan will be better secured by the value of the development (building structures, etc.) on the land.
In Texas, a land contract, also known as a contract for deed, is a form of seller financing used for the purchase of real estate. This type of agreement allows the buyer to make installment payments directly to the seller, typically including interest and possibly a balloon payment at the end of the term. The seller retains legal title to the property until the buyer completes all payments according to the terms of the contract, at which point the seller is obligated to transfer the title to the buyer. Texas law regulates contracts for deed, particularly under Texas Property Code, Chapter 5, Subchapter D, which provides specific requirements and protections for buyers, such as disclosure obligations for sellers and the right for buyers to cure defaults to avoid forfeiture of their interests. Financing for land contracts can also be obtained through banks or other lenders, often with higher interest rates and shorter terms compared to traditional mortgages. When a balloon payment is due, a takeout loan may be sought to secure better financing terms, especially if the land has been developed, thereby increasing its value and security for the loan.
