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.

Igor Ganapolsky · Answer

I invest in Florida tax deed auctions, and the financing situation there is completely different - it's cash only at the auction. No seller financing, no mortgages, just a cashier's check. So I don't have direct experience with PA usury laws.

But from what I've seen across different states, the pattern is that states with strong consumer protection laws (like PA, NJ, NY) tend to have strict usury caps on residential owner-occupied financing, while states that are more investor-friendly (Florida, Texas) either have higher caps or exemptions for non-owner-occupied properties.

The workaround people use in strict states is to structure the deal differently - lease options instead of land contracts, or selling to an LLC/business purpose rather than an owner-occupant. But as Chris mentioned, PA attorneys general do get involved, so you need a solid attorney who knows the specific exemptions.

The math problem you're describing - buying for 40k and needing to sell for 160k to make the numbers work at 7.5% - that's a sign the deal doesn't work as a seller financing transaction. Maybe it works better as a straight flip with hard money, or as a rental with traditional financing. Not every deal fits every exit strategy.

Joseph Scorese · Answer

Jacob, great points. Pennsylvania can certainly be nuanced when it comes to usury laws, seller financing, and transactions involving a primary residence.

The distinction between consumer/owner-occupied financing and business-purpose or investment-property financing is especially important, as the applicable requirements can be very different depending on the property, borrower, loan amount, and structure.

I completely agree that this is an area where investors and sellers shouldn’t rely on general assumptions about allowable rates. Having a Pennsylvania real estate attorney review the specific transaction and financing documents before moving forward is the prudent approach.

Appreciate you adding this perspective to the discussion.

Jacob Camhi · Answer

it's easy to get tripped up on state-specific usury laws, especially for owner financing for a primary residence. pennsylvania does have some pretty specific rules for residential mortgages that can catch folks off guard.

act 6, section 301, often applies to consumer residential mortgages. a land contract or deed of trust for a primary residence can definitely fall under this, especially for amounts over $50,000.

the higher rates you're seeing might be for commercial properties, investment properties not used as a primary residence, or perhaps loans structured differently or exceeding certain thresholds that change the rules.

i'd strongly suggest talking to a local real estate attorney in pa who specializes in seller financing and land contracts. they can clarify if your specific deal, amount, and property type falls under the 7.5% cap and how to structure it legally.

have you already outlined the exact terms and purpose of the loan with a local pa real estate lawyer?

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% ?!?

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

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