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Buying Real Estate Land with Owner Financing in California?

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Buying Real Estate Land with Owner Financing in California? Important Things to Consider

Most people looking to buy vacant land or plot for sale in California try to finance the deal with a mortgage. While you may believe a mortgage to be your best option, you have several other alternatives at your disposal while buying real estate land in CA. Owner-financing is one of them.

If you haven’t heard of owner financing, let’s first go over some details explaining what it actually is:

Owner-financing means that the deal is being financed by the seller instead of a conventional lender.

The seller doesn’t pay cash to the buyer, rather he or she extends enough credit to the buyer for the purchase price of the real estate land in California. You will still have to pay some amount as down payment. You and the seller will sign a ‘promissory note’ containing all the terms and conditions of the loan. You will record “deed of trust” with the land title office. The title will be recorded in your name only when you have paid off the principal and interest amount after a specific number of years (specified in the promissory note).

The promissory note will lay down terms and condition of the loan payments. You will have to make monthly payments which will include the principal amount and interest. In owner-financing, loans are usually short-term. The amortization period may be 30 years, but you may still be required to make a balloon payment after, let’s say, in five or ten years.

When should you consider owner-financing?

  • If you believe land values will increase substantially in the near future. In seller-financing, you can ‘lock’ the purchase price at the time of signing the agreement with the seller.
  • If you can’t secure a traditional loan due to any reason including poor credit score.
  • When interest rates are high and the market is tight, more land becomes available with seller financing.
  • When you are buying in a buyer’s market.
  • When you believe you are not financially prepared to take on homeownership at the moment, but your financial situation will improve in the next few years.

You need to keep in mind that the contract you sign with the seller are highly customizable. You and seller can draw the terms and conditions according to any agreements reached during negotiation.

Here are a few things you need to keep in mind when buying land with owner-financing:

  • You must get documents related to the plot to know existing liens against the property. Most sellers will go for owner financing only when there is no mortgage recorded on the property. Make sure that the title is clear and free of liens. If there is a mortgage, you will need to talk to the lender if they would allow owner-financing and let you assume the seller’s mortgage.


  • Planning and zoning regulations differ from state to state, even county to county. Make sure that the land doesn’t violate any zoning regulations. If you have a specific use for the land in mind, you should ensure that you will be able to get permission for the same from the zoning office.


  • Have an experienced professional on your side to draw up the promissory note based on the agreements reached during negotiation with the seller.


  • If you want to sell the land to a third party, make sure that the promissory note gives you this right and the land title is clear. You won’t be able to resell if you hold an ‘equitable title’. An equitable title allows you to use the land, but it doesn’t grant you the right to refinance or resell.


  • A seller can foreclose upon the property if you miss payments. The terms of foreclosure should be mentioned in the contract.

If you are planning to buy plot for sale in CA, you have lots of options for financing. Now is the great time to invest in cheap land in CA.

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