What interest rate for this land contract?
I am selling a SFH on 15% down land contract carried for 2.5 years with a starting balance of ~$34K, 15-year amortization with balloon. This is my first land contract. I'll have an attorney guide me through the first time. One thing that the buyer and I didn't touch on: What interest rate? Oops!!
What’s a fair and reasonable interest rate for those terms? The house will be owner-occupied initially, if that changes anything. I know the answer is “whatever you can agree to” but I was hoping to get a range. As of now it’s assumed to be 0% since it was never discussed in our face to face meeting. Or is it normally 0%?
Around 5% or so.
When we are selling on owner financing we play around with the interest rate and amortization schedule to arrive at a payment/cash flow that makes sense for the buyer. We are somewhere between 8%-12% depending on the loan amount, value of property, deposit, condition of property, use of property, length of loan, strength/experience of borrower, etc. etc
How are you underwriting your borrower? Have you verified employment/income. Credit worthiness. Home ownership experience.Debt to income ratio. You need to underwrite them just as the bank would. After all, that is what you are becoming.
What happens when they can't make the balloon payment?
