A land contract – often described by other terms cited below – is a contract between the buyer and seller of real estate, in which the seller provides financing to the buyer at the time of purchase and the buyer rem pays the loan obtained in increments. As part of a land contract, the seller reserves the legal right to the property, while allowing the buyer to take possession of it for most purposes other than legal property. The sale price is usually paid in regular instalments, often with a balloon payment at the end, in order to reduce the duration of payments compared to the fully depreciated loan (i.e. a loan without a final balloon payment). If the full purchase price, including interest, is paid, the seller is required to transfer (to the buyer) the title to the property. A first down payment from buyer to seller is usually also required. A land contract allows the buyer of a property to use it, while the seller maintains the deed. Once the buyer has paid the full price indicated in the contract, the seller hands over the deed to the property. Historically, contractual agreements were popular in Chicago in the mid-20th century, and buyers, often black families, who were avoided by state-insured mortgages, “did not accumulate equity and faced a long and precarious path to property.”  Land contracts are often financed by sellers. However, in some cases, a borrower may apply for traditional bank financing for a land contract. A borrower who wants to build on land might want to finance the property through a bank loan.
The terms of a home loan generally include a higher interest rate and are generally based on a shorter term. Land loans are often structured by a balloon payment rather than regular staggered payments. Often, owners who receive a loan for land refinance or refinance the loan with a term loan, once the property is built and a higher security value is set. Land contracts are an alternative to mortgages, except that buyers do not hold the deed on the property. Land contracts are legally binding and allow for any type of payment structure. Land contracts offer property buyers the opportunity to overpay and pay for the property in less time. A land contract explains the specific conditions for the purchase of land.