If you have been buying a commercial property on a land contract — also called a contract for deed or a land installment contract — and you want to pay off the seller, take the deed, and put a real mortgage on the building, the short answer is yes. Under The Fiirm's SBC (small balance commercial) program, a land contract is an allowed structure, and the payoff is underwritten as a refinance, not a purchase, as long as the contract is more than twelve months old.
That classification decision is worth more money than anything else on this page. It sets what value your loan is sized against.
That is the entire written provision: two sentences of definition, one sentence of rule. Everything else on this page comes from the general SBC sections a land-contract payoff has to pass through anyway — loan purpose, value, seasoning, title, credit — plus an honest account of where the guideline is silent and the file goes to case-by-case review. There is no dedicated commercial land-contract chapter with its own seasoning schedule and document list. The general rules govern.
Why the residential answers you found do not apply
Search this topic and you get Fannie Mae B2-1.3-05, Freddie Mac 4404.1, and a stack of retail-lender explainers. Those are residential agency rules for one-to-four-unit loans sold to the agencies, with their own tests — whether the contract was recorded, whether the payoff is capped at the unpaid principal balance, how long you must have been on the contract before appraised value is usable.
None of that governs a commercial file. The SBC program has its own definitions of purchase and refinance, its own value hierarchy, and its own seasoning provision. Where the residential rules and the SBC guideline happen to agree, that is coincidence, not authority.
Refinance or purchase: where the line sits
The SBC guideline defines both transaction types in its glossary.
A refinance transaction is one in which a current property owner replaces an existing loan on the property with a new loan; proceeds pay off existing liens and closing costs up to 3% of the loan amount. A purchase transaction is one in which property is acquired for an agreed price, with proceeds used for the borrower to acquire title.
A land contract sits between them, which is why the guideline addresses it by name. You are not the record owner — the seller holds the deed — but you have been paying toward full ownership for years. The guideline resolves that in your favor: refinance, unless the contract occurred within the last 12 months.
Be careful here. The guideline states the refinance treatment and states the twelve-month carve-out. It does not state what a contract signed inside twelve months becomes instead. It says "unless." The plain reading — and the one to plan around — is acquisition treatment, because the guideline expressly gives purchase treatment to the structurally similar lease option and because the LTV section applies loan-to-cost to purchases and new acquisitions. But that inference is mine, not the guideline's. On a fresh contract, get the classification in writing before you pay for an appraisal.
Why classification decides your loan amount
The SBC program sizes loans two ways, and only one of them is friendly to somebody who signed a below-market contract years ago.
Loan-to-value (LTV) is the loan amount divided by the value of the mortgaged property, or the internally derived value. The maximum allowable LTV is calculated on the lower of three numbers: the internal value from appraisal review, the adjusted sales price net of material credits, or the appraised value.
Loan-to-cost (LTC) is the loan amount divided by the cost basis at the loan origination date. LTC is only applicable on purchases or delayed financing, and is only utilized if the subject property is a new acquisition. Cost basis means the purchase price, plus verified borrower-paid hard and soft costs expended to date (rehabilitation and renovation — capital expenditure), plus customary borrower-paid arm's-length closing costs and fees. If closing costs are not documented or clearly verifiable at closing, up to 2% of the purchase price may be added. Mortgage broker fees, origination fees and points are excluded.
The practical effect: if your contract is seasoned past twelve months, the file is a refinance, LTC does not apply, and your loan is sized against today's value — the price you agreed to in 2019 does not cap you. If the contract is inside twelve months and the file is handled as a new acquisition, cost basis is live and the contract price, not the appraisal, becomes the effective ceiling. For a buyer who has been paying down a contract on an appreciating building, that is often the whole deal.
| Contract more than 12 months old | Contract within the last 12 months | |
|---|---|---|
| Classification | Refinance | Not stated; expect acquisition treatment and confirm in writing |
| Sizing basis | LTV against appraised or internal value | LTC against cost basis is in play |
| Contract price relevance | Not a cap | Effectively the ceiling, plus documented CAPEX and closing costs |
| Seasoning provision | Applies only if cash-out and ownership is under 12 months | Applies |
| Reserves | 6 months P&I | 6 months P&I |
The LTV ceilings you are actually working against
The SBC core parameters set a higher ceiling for purchases than refinances, and the refinance number is what a land-contract payoff is measured against.
Those are maximums, not entitlements. Minimum FICO is 650 for the lead guarantor and 640 for the rest. Owner-occupied files are underwritten to 1.20x global debt service coverage; investor files to 1.15x property DSCR. Properties deemed rural by the appraiser cap at 60% LTV. Loan sizes run $100,000 to $2,500,000.
The guideline also addresses layered risk directly: FICO, DSCR and LTV each carry their own limits, and when one parameter approaches its threshold, others may be tightened. A land-contract file that already needs a classification call is not the file to also push to maximum leverage.
Cash-out: the 10% line and the use-of-proceeds limit
Most land-contract payoffs are rate-and-term by nature — the seller's balance and closing costs, nothing more. Pulling additional proceeds changes the file.
Two consequences. Crossing 10% re-labels the transaction as cash-out, moving you onto the cash-out row of the pricing and LTV matrix. And the money has to go somewhere permitted. All loans in the program are for commercial purposes only and are certified as such by the borrowers and guarantors. Construction loans are not offered.
Seasoning: it bites on cash-out, and it is about ownership
The SBC seasoning provision is written for cash-out refinances, and it keys on how long you have owned the property.
For a long-running land contract this is usually a non-issue — the twelve-month ownership question answers itself. On a recent contract it stacks on top of the classification problem: you are inside twelve months on both provisions at once.
Note what survives regardless of timeline. Capital expenditure evidence cannot be financed and is reviewed against paid invoices, and demolition, debris removal, fixing lights and outlets and carpet removal are expressly not capital expenditure. Cash-out can be limited case-by-case to initial capital expenditure plus closing costs whatever the seasoning. The property must also meet occupancy and stabilization requirements: 75% occupancy maintained for the 90 days preceding application.
What the contract itself has to produce
This is where the guideline is thinnest, and I would rather say so than invent a document list.
There is no land-contract document schedule in the SBC guideline — no stated requirement for twelve months of cancelled checks, no minimum number of payments made, no recording requirement, no rule capping the payoff at the unpaid principal balance. Those requirements exist in the residential agency world. They are not written into this commercial program.
What the guideline does require, and what a land-contract file will be measured against:
The contract as the sale document. The standard documentation checklist calls for a fully executed purchase and sale agreement with all amendments and schedules, with an extension provided if the agreement has expired. On a land-contract file that is your contract for deed and every amendment to it. Produce the complete instrument, not the signature page — including any assignment, any modification of the payment schedule, and anything addressing what the balance is today.
Payment history. Documented verification of income, assets, employment history and mortgage payment history is described as integral to the process. Credit standards allow no more than one mortgage late in the last 12 months and no more than two in the last 24 (1x30 within 12 months, 2x30 within 24 months) on a residential and/or subject-property mortgage. Trade-line minimums are two lines where there is a satisfactory mortgage rating for at least 12 months within the last 24 plus one additional open line; three lines otherwise. Authorized-user accounts and non-traditional credit do not count.
The honest gap: a land contract usually does not report to the bureaus, so it will not appear as a mortgage rating, and the guideline does not say how its payment history substitutes for one. Plan to prove it yourself — cancelled checks or bank debits matching the contract's payment schedule, plus a payoff or balance statement from the seller — and plan for the file being underwritten on the three-trade-line standard because no rated mortgage exists.
Property and income documentation. Two years of property operating statements or Schedule E plus year-to-date, two years of business profit-and-loss or returns on owner-occupied files, current rent roll and executed leases on investor or multi-tenant properties, two months of bank statements, proof of insurance with annual premium, and a debt schedule on owner-occupied loans. Plus six months of liquid reserves measured in months of qualifying principal-and-interest payment — cash-out proceeds can count toward reserves if FICO exceeds 700 and the proceeds equal or exceed the six-month requirement.
A capital expenditure schedule, if improvements occurred in the last twelve months. Contractor invoices or bank transactions are acceptable in lieu of the schedule.
Title has to land in fee simple, in an entity, in first position
Three structural requirements shape your closing more than anything in the credit file.
The land contract has to be extinguished at closing: the seller's interest is paid off, the deed conveys, and the final title policy shows fee simple vested in the borrower with our lien first. You cannot leave any part of the contract balance outstanding behind the new loan — subordinate financing is not permitted, full stop.
The borrower must also be a for-profit legal entity domiciled in the United States, in good standing, wholly owned by natural-person US citizens or permanent residents. Land contracts are frequently signed by individuals; if yours was, the conveyance at closing has to go to the borrowing entity, and that transfer is itself reviewable.
The relationship problem
Land contracts are seller financing, and seller financing is often between people who know each other — a retiring owner and a long-time employee, a father and a son, two partners unwinding a shared holding.
Read the timing carefully. Disclosed at initial application, an exception may be considered. Discovered later, the file will likely be declined. The cost of telling us on day one is a harder underwrite. The cost of not telling us is the deal. If your contract is with a relative, a former partner, or anyone else you would have to explain, put it on the application.
What the guideline says, and what it leaves open
I would rather draw this line explicitly than let the length of this page imply more certainty than exists.
Stated: land contracts, contracts for deed and land installment contracts are allowed; they are considered a refinance transaction unless the contract occurred within the last 12 months; the deed is held by the seller until payment is made in full. Everything above about LTV and cost basis, the 10% cash-out line, cash-out seasoning, reserves, first lien and fee simple, entity eligibility, non-arm's-length treatment, transfer review and documentation is also stated — as general program rules that catch your file.
Not stated, and therefore case-by-case: what a sub-twelve-month land contract is classified as instead; whether the contract must have been recorded; how many payments you must have made; whether the payoff is capped at the unpaid principal balance; how contract payment history substitutes for a rated mortgage trade line; and how a seller's payoff statement should be documented. The guideline says plainly that its standards are general and exceptions may be considered case-by-case with credit approval. A land-contract payoff is exactly that kind of file.
Practical translation: bring the complete contract and all amendments, proof of your payments, a payoff figure from the seller, and full disclosure of your relationship with that seller. Then get the classification call before you order the appraisal.
What this page does not do
This page does not price your loan, approve it, or commit The Fiirm to anything. It describes how the SBC program treats a land contract as of the 8/3/2026 guideline version, and flags where that guideline is silent.
It does not restate Fannie Mae or Freddie Mac land-contract policy as though it applied here — those are residential agency rules for one-to-four-unit conforming loans and they do not govern a commercial file. It does not tell you what your property is worth, what your title company will find, or whether an unrecorded contract in your state creates a curable exception; those are appraisal, title and legal questions. And it does not promise the twelve-month line will be read your way on a close call. Every land-contract file is a classification decision before it is a credit decision. Get that decision in writing first.
Guideline SBC 08/03/2026 · Reviewed August 31, 2026
Published August 31, 2026 · Updated August 31, 2026
How to use this guide
This article is educational guidance, not an offer or commitment to lend. Rules, property facts, credit, leverage, documentation, and full underwriting still control any actual scenario.