Shorts
What owner financing terms should you check before buying land?
Regulation Z's seller financer provisions apply to credit secured by a dwelling, defined as a residential structure of one to four units. A vacant lot has no structure, so they generally do not reach a raw land sale. Run the test: down payment plus monthly payment times months. Interest gets the attention, the balloon ends deals. Text LAND to (307) 337-9113 for price drops and new lots.
How do you check owner financing terms on raw land?
Add the down payment and any signing fee to the monthly payment times the number of months. That total should match the financed price you were quoted. If it comes up short, the gap is a balloon. Federal Regulation Z protections are written for dwellings, so on a vacant lot the math is on you.
Why doesn't Regulation Z protect a raw land loan?
Because a vacant lot is not a dwelling. Regulation Z defines a dwelling as a residential structure that contains one to four units, and its seller financing rules are aimed at credit secured by a dwelling. No structure on the lot, so those rules generally do not reach the sale.
Source: 12 CFR 1026.2(a)(19), Regulation Z definition of dwelling (Cornell Legal Information Institute)
What is a balloon payment, and why does it end deals?
The Consumer Financial Protection Bureau describes a balloon payment as a large, one-time payment at the end of the loan term, and warns that if you cannot make it you could lose the property. Low monthly payments followed by a balloon look affordable right up to the last month.
Source: Consumer Financial Protection Bureau, What is a balloon payment? When is one allowed?
What does the math look like on a real lot?
On the lots I sell in Izard County: $49 down plus a $100 document fee at signing, then $105 a month for 48 months. That is $149 plus $5,040, a financed total of $5,189, with no balloon at the end. Card payments add 1.9% processing on top.
Transcript
Nobody's coming to protect you on a land loan. So do this math. Federal Regulation Z protects home loans. A vacant lot has no structure, so those rules generally don't reach a raw land sale. The terms are on you. Here's the test. Down payment, plus monthly payment times the number of months. That's your total. Interest gets the attention, but the balloon is the one that ends deals. If that total doesn't add up, there's a balloon. Address on screen.
Sources
- 12 CFR 1026.36 - Regulation Z seller financer exclusions (a)(4) and (a)(5) and the scope paragraph
- 12 CFR 1026.2(a)(19) - the definition of "dwelling" as a residential structure containing one to four units
- Fair owner financing terms on land - YAI LLC (the total-cost test and why the balloon is the term that ends deals)
Lots you can look at right now
- 0.27 Acres, Lot 29, Horseshoe Bend in Horseshoe Bend, AR (0.27 acres, $1,995 cash or $149 at signing)
- 0.25 Acres, 1205 Pavilion Ln, Horseshoe Bend in Horseshoe Bend, AR (0.25 acres, $2,250 cash or $149 at signing)
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