what is the average interest rate for a contract for deed?

Asked by Ryanne Entze, Canby, OR Thu Jan 12, 2012

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Steve Vennemann’s answer
Steve Vennem…, Agent, Pine Springs, MN
Thu May 30, 2013
There is no set interest rate on land contracts. What ever the seller and buyer agree to. The seller usually decides on the rate they want in most cases.
0 votes
, ,
Thu Jan 12, 2012
Ryanne, I hope to see several responses from agents in your area. Personally, I have seen interest rates all over the board on a contract for sale...from equal to, or close, to mortgage rates on the general market to double (or more). The down payment, credit of the borrower, condition of the house, motivation of the seller will all come into play. Not to mention, the "exit plan" for refinancing out of the contract for deed (if applicable).

Be very, very cautious about entering into a contract for deed....I am quite sure most industry professionals each have at least one horror story for either a buyer or seller on a contract for deed scenario. Certainly, involve an attorney or a real estate broker. Set it up for success for all concerned, from the onset. The pitfalls are far to numerous to lay out on an advice forum; however, if you want some general guidance you can contact me via my profile. Best to you!
3 votes
Kelly Gebler, Agent, Portland, OR
Thu Jan 12, 2012
Good morning Ryanne! When purchasing under a seller contract - everything is negotiable. I've sold several of these and each one was different. Much will vary depending on the price and term/length of the contract. For a better price and longer term and possibly a prepayment clause, most sellers will consider a lessor interest rate. If you only need the seller to carry for 2-3 years...you may pay a higher interest rate so that the seller can make a return on their risk. Most of the risk is in the hands of a seller on these and, as Lana mentioned, there are some nightmare stories to be told by sellers and buyers who've tried this and failed. I have one pretty pricey bank owned home currently listed for sale where the original owner sold it on contract to someone else. The new buyer made their payments to the original owner, but that original owner didn't make the payments on his loan so the bank foreclosed and the contract buyer had no recourse. The juicy part of the story is that the contract buyer got so mad he kidnapped the original owner, duct taped him to a chair in the wine cellar and left him there for several days - that contract buyer is now doing 18 years in prison. Fun times! Of course they don't all go that way and a seller contract is a good avenue in our current market.

Best of luck to you and yell if you have any other questions.

Kelly Gebler, Principal Broker
Cornerstone Group NW @ Keller Williams Realty
2 votes
Don Tepper, Agent, Burke, VA
Thu Jan 12, 2012
Good answer from Cornerstone.

It's all negotiable. All other things being equal, it would be somewhat above the current mortgage rate--very roughly, maybe between 5.5% and 8%. But it depends, as Cornerstone noted, on the length of the contract and other factors. Frankly, it also depends on your motivation. Can you get conventional financing at 4%? Then, if the contract for deed is above that amount, then just go with conventional financing. On the other hand, if you've got really weak credit, then expect to pay a higher rate.

Hope that helps.
1 vote
Don, What if there is a land contract for 7 years, but the house is paid in 4, would the seller be able to charge interest for all the years? Im currently paying 10% interest.
Flag Thu Dec 11, 2014
Melina Tomson, Agent, Salem, OR
Thu Jan 12, 2012
Kelley is talking about a wraparound which isn't as desirable as a straight land sales contract or first trust deed. The last one I did in 2011 was at 6.75%. What the interest rate will be greatly depends on why you can't get regular financing. The lower the risk to the seller the lower the interest rate can be. If you are a risky buyer be prepared to pay between 9-12%.

If you do engage in a wraparound mortgage there are some things you can do to protect yourself from being in the situation where the underlying note isn't being paid but you need to have an attorney involved in these transactions.
1 vote
Lana Lavenba…, Agent, Grants Pass, OR
Thu Jan 12, 2012
Your question is very vague. If you are asking conventional financing - banks are charging anywhere from 3.75 to 5% depending on someones ability to get a loan, such as credit score, debt to income ration, etc. The same goes for private money lenders that have their own trust deeds, etc. The interest rate could be all over the place on up to 12% depending on how much is being loaned and the ability of the buyer to repay, etc. There are just so many variables to give you a definite answer!
1 vote
tellysavalis, Both Buyer And Seller, California City, CA
Tue Jan 14, 2014
Between low risk buyers , members of your family..... at least for me -use the minimum applicable
federal rate, which changes frequently. Today three to nine years is at 1.75% rate. Contracts for deed
don't have closing costs, not a bloody mortgage. Mortgages and refinancing, I have discovered,
are necessary evils of house ownership, but negotiable. Everything is negotiable.
0 votes
taitanbrown, Home Buyer, 14228
Thu Oct 31, 2013
Hi Ryanne

The interest rate you receive on your reverse mortgage loan will be to most important factor in determine how much you will be able to borrow/receive today and how much will build up over the course of the loan. Just as with a forward mortgage (think of a refinance) where you would want to secure a low fixed rate this is the same concept with the reverse mortgage.To know more search

0 votes
Wayne Sanman, Agent, Clackamas, OR
Thu Jan 12, 2012
Ryanne, it is all negotiable, but in the contract for deeds that I've been involved with 1% over the market rate for a similar mortgage is very common. Do not enter into a contract for deed without consulting a lawyer, and I'd recommend having that lawyer draft your contract if you opt to go in that direction. And a good real estate broker would be advisable too.
0 votes
Melina Tomson, Agent, Salem, OR
Thu Jan 12, 2012
I am assuming you are asking about owner financing and not conventional Trust Deeds.
0 votes
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