How is it possible to do Owner Financing / Seller Financing in Pennsylvania? 7.5% ?!?

Question

I’m selling a PA single family home on a land contract/contract for deed. Buyer will occupy it. Amount financed is over $70k.

Does anyone know the maximum interest rate I can legally charge? I’ve seen people doing 10 to 15%+, but how?

Act 6, section 301: No residential mortgage can be over 7.5%.

Anyone actually doing land contracts or seller financed in PA or any attorneys confirm the rate they can charge?

How can I only do 7.5%? Does Act 6/section 301 Apply to me and my buyer? this seems insane. My interest rate myself is above 7.5% how the heck can i charge the buyer only 7.5% maximum???

Chris Seveney · Answer

pennsylvania laws are extremely difficult and the attorney general does get involved. the amount you can charge is very limited and it's usually tied to the fed funds rate but 7.5% seems about correct.

i know of at least three investors who had to go back and reduce interest rates and give back the delta from the rate they were charging to the borrower or credit it to the principal balance. you also cannot have prepayment penalties in pennsylvania typically. you definitely want to have a really strong attorney review your documents and just not use a random loan officer.

Rob Lawrence · Answer

If you are limited to what you can charge in interest legally, which I am not sure if you are, you could always change the price to get better compensated.

Steve Candor · Answer

Yes that is the issue. Im buying the place for 40k and then at 7.5% legal cap i need to charge 160k to sell it if im selling it at 1100 a month. Thats 4x the price i paid and selling it with 0 renovations and in 1 week after i purchase. I am worried if i do this it wont look good to PA govt or people who buy from me will be upset. But honestly its an issue because of the limited interest i can charge and will cause them not to be able to refinance either. Its a bad situation

Joseph Cacciapaglia · Answer

I came across this bulletin, which seems to indicate that federal law has pre-empted the limitation in specific situations: https://www.pacodeandbulletin.gov/secure/pabulletin/data/vol...

I'm no longer an attorney, and never was in PA, so this is not legal advice. I'm just sharing something I found on the internet.

How is it possible to do Owner Financing / Seller Financing in Pennsylvania? 7.5% ?!?

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