This toolkit tells you about three common ways to buy a home in Michigan without a mortgage, and the risks that come with these purchases. For general information, read the Articles. Review the Common Questions if you have a specific question. The links under Courts & Agencies will tell you about the court that will handle your case.
You'll find links to legal aid offices and lawyer referral services under Find A Lawyer. If there is a Self-Help Center in your area you can get more help there. If you need something other than legal help, look in Community Services. If you need a fee waiver, an interpreter, a court to accommodate your disability, or more information about going to court, visit Going to Court.
Common Questions
People can buy a home from a private seller with a land contract, lease with the option to buy, or rent to own agreement. However, all of these contracts usually offer fewer protections than a mortgage. To learn more about these contracts, read An Overview of Land Contracts and Leases with the Option to Buy and Rent to Own Contracts.
A land contract is a contract between a buyer and private seller for real property that has a home on it. With a land contract, the buyer does not get full ownership of the property. The buyer is an owner, but they only get “equitable title” of the property. Equitable title is the right to obtain full ownership of property. This is different from legal title, which is actual ownership of property. The buyer will not get legal title until the total purchase price is paid.
Leases with the option to buy and rent to own housing contracts are similar, but there are some key differences between the two. A lease with the option to buy is a contract with two parts. First, it is a residential lease. Second, the tenant purchases an “option” to buy the home, according to the terms of the option agreement. This purchase is usually non-refundable. In general, the option agreement will say all of the following:
- The home price
- The time the tenant can use (“exercise”) the option
- Other requirements the tenant must meet before they can exercise the option
Under a rent to own agreement, a tenant pays a monthly fee. Most of it is rent, the rest goes towards the purchase of the home.
Another difference between all these contracts is that with a land contract, the seller can forfeit the contract or foreclose on the home if the buyer breaches (doesn’t follow) the contract. With the other contract options, the landlord-seller could possibly just use the eviction process to get the home back.
If you buy your home using land contract, a lease with the option to buy, or a rent to own contract there are several risks to worry about. Many homes sold using one of these contracts usually have significant repair problems. These contracts often make the buyer responsible for making all repairs to the home during the contract. This is the opposite of a regular landlord-tenant relationship where the landlord has to make all repairs.
Sometimes the seller doesn’t have clean title or any title to the home. This means there could be existing liens on the property or other things that limit a buyer’s rights to the property.
These contracts could also have subordination agreements. These agreements allow the seller to give others interest in the property that is superior to buyer’s.
The biggest risk can come when a buyer breaches (doesn’t follow) the contract. The most common breaches by a buyer deal with payments. If the buyer misses a payment or isn’t able to make the entire monthly payment, these contracts usually give the seller a lot more power than buyers. For example, a land contract could have an acceleration clause, which allows the seller to demand all past due amounts and the remainder of the contract be paid or the buyer could lose the home. With leases with the option to buy and rent to own housing contracts, if a buyer misses a payment, the seller could go through the regular eviction process. This means the buyer could only have 10 days to pay the amount owed or lose their home.
To learn more about the risks, read An Overview of Land Contracts and Leases with the Option to Buy and Rent to Own Contracts.