Help with creating a seller financed installment contract

[Jason Williams]

I'm selling a parcel of land to a friend.  We both agreed to seller financed installment sale. Anyone have a contract they'd recommend using? 
Are the any special rules that I should be aware of for setting this up as an installment sale for deferred capital gains? Any specific terms that need to be addressed in the contract to ensure the IRS and FTB recognize the installment sale?

[Wale Lawal]

@Jason Williams

Certain home buyers may find these options (which may provide more opportunities to finance a home purchase and may even come without a credit check attached) attractive, especially low-income or first-time home buyers. Be advised, though: Some seller financing offers may function more like rental agreements than traditional mortgages, and offer unfavorable loan terms that offset any initial benefits to be had. As with any form of mortgage agreement and legally binding real estate contract, it’s important to do your research, and consult with a qualified professional upfront.

Let’s look at the most common types of seller financing arrangements:

• Land contracts: A land contract is an agreement to purchase a piece of real estate that involves buyers borrowing money from the real estate owner until the purchase price is paid in full, rather than from a bank, credit union or financial institution. Land contracts typically work in a unique fashion where a balloon payment, or lump sum, comes at the end of the repayment period after the repayment plan is negotiated between the two parties.

• Assumable mortgage: An assumable mortgage is a type of home financing in which buyers are given the opportunity to purchase a home by assuming responsibility for and taking over the seller’s current mortgage (especially if it’s charged at a lower interest rate).

• Lease purchase: Also known as a rent-to-own contract, a lease purchase agreement speaks to a form of agreement under which renters pay sellers an option fee at an agreed-upon purchase price that gives the renter the exclusive lease option to purchase the property at a later date.

• Land loans: A land loan is used to facilitate and finance the purchase of a plot of land for later use for residential or business purposes.

• Holding mortgage: Under a holding mortgage agreement, a homeowner agrees to serve as a lender for the home buyer, and provides a loan for the purchase, which the buyer repays by making monthly payments to the seller. The seller continues to hold the property’s title until full loan repayment has been made by the buyer.

All the best!