Senate Eyes Land Contract Risks, Opportunities

On July 11, The Pew Charitable Trusts submitted written testimony to the U.S. Senate Banking Subcommittee on Housing, Transportation, and Community Development’s hearing on harmful practices in the market for land contracts, an alternative form of home financing. The statement provided research on land contracts, in which buyers receive legal ownership of a property only after making their final payment, showing that although these arrangements are far riskier than mortgages, borrowers may turn to them because small mortgages—those for less than $150,000—are difficult to obtain. Pew’s data also suggests that many land contract homebuyers are well qualified for small mortgages.

Pew has found that approximately 8 million Americans have used a land contract to pursue homeownership. And although these arrangements are used in almost every state, they are most common in the South and the Midwest. Pew’s research also has shown that approximately 69% of homebuyers who use land contracts are non-Hispanic White, 13% are Hispanic, and a disproportionately high share—15%—are Black. Black households make up just 8% of homeowners overall.

Pew's housing policy initiative works to identify opportunities for policymakers to improve outcomes for consumers who use alternative financing and to expand access to safer mortgages.