Not everyone can obtain a traditional mortgage to purchase their home, due to various factors including the smaller size of the underlying loan needed for the purchase, the credit history of the borrower and the nature of the property. Manufactured homes may not be eligible for mortgage loans, if the home is not titled as real estate. In these situations where a traditional mortgage may not be available or may be out of reach for the borrower, alternative financing arrangements can provide finance opportunities for potential homeowners. Alternative financing arrangements include:
- Land installment contracts.
- Lease-purchase agreements.
- Personal property or "home only" loans.
- Seller-financed mortgages.
A traditional mortgage is a credit agreement used to purchase real estate that involves a third-party lender whose involvement in the real estate transaction revolves around the loan, and requires compliance with federal and state mortgage lending laws. The seller transfers the property title or deed of ownership to the buyer during the mortgage loan closing process. In contrast, alternative financing arrangements may not involve a third-party lender and the title may not transfer until the end of the financing term when all the payments have been made.
Alternative home financing agreements do not have the same consumer protections and regulatory oversight as traditional mortgages in state and federal law, so consumers may face more risk and complications if problems arise between the seller and the buyer.
At least 20 states have substantive laws regulating the central elements of land installment contracts and other alternative home financing arrangements. Select a state in the map below to review the relevant state statutory text regarding land contracts and other alternative home financing.