What type of interest rate should I charge for land contract?how long is the pay off period? Would the buyer be eligible for any tax credits? Last,

Asked by cangie8865, Detroit, MI Mon Apr 12, 2010

if selling for 40k how is deposit determined? Thanks

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Bob McClure, Other Pro, Walled Lake, MI
Mon Apr 12, 2010
hi...the state max you can charge in michigan is 11% on a land contract......the amortization (payback period) is up to you, as well as the downpayment and balloon..you need to know something about their credit and income so you can give them a reasonable amount of time to refinance and pay you off......the first time homebuyer tax credit does apply assuming your buyer has not owned a home in the last three years...whatever payment you are targeting every month...can be figured by shortening or lengtheing the amortization...i always suggest closing with a local title company..and have them file the homestead exemption so your buyer can keep the taxes lower..as well as printing out an amortization chart so both you and the buyer have something in writing to go by reflecting remaining the balance owed as payments come in to you..i suggest that your buyer pay the property taxes and homeowner's insurance directly to you, and then you pay to the insurance company and the taxes yourself .don't forget...when the balloon comes due when your buyers pay you off...deed then transfers and you (as the seller) are responsible for seller's title and transer tax...figure that into your numbers when negotiating the sales price and terms of the contract....best regards...bob mcclure- first preferred mortgage- southfield, michigan.....
2 votes
sorry in texas
Flag Mon Mar 13, 2017
Don Tepper, Agent, Burke, VA
Mon Apr 12, 2010
All of that's negotiable. It's totally up to the buyer and seller. Incidentally, you've listed yourself as a "Home Buyer," but the questions you're posing sound as if you're the seller. Still, it doesn't matter.

As for interest rate, often the rate charged is slightly higher than the going interest rate for mortgages. That's because the buyer often is getting a benefit he/she wouldn't have been able to otherwise. Example: If the going mortgage rate is 5%--but the buyer isn't able to qualify for a mortgage--then the buyer probably ought to pay more than 5%. That might be 6%, 8%, or more.

As far as the payoff period, that really depends on a couple of things. From the seller's perspective, over what time does he/she want all of his/her money? And from the buyer's perspective, what is an affordable monthly payment? Of course a land contract can also be structured as a balloon payment--for example, payments calculated as if they were a 30 year mortgage, but with a requirement that the remainder be paid (the "balloon") at the end of 5 (or 7 or 10) years.

As for qualifying for tax credits, check with an accountant.

How is the deposit determined? It's all negotiable. It's whatever the buyer and seller agree to. It could be quite small--$2,000 or $3,000, for instance. It could be the equivalent of a 20% down mortgage, so in this case that'd be $16,000.

Really, there are no set rules. I can't say: 8%, 30 year amortization with a 5 year balloon, $4,000 down. It's whatever the two parties want. Obviously, the buyer would prefer to have a lower interest rate and less down. The seller would want to have a higher interest rate and more down.

Hope that helps.
1 vote
Travalewis, Home Buyer, Detroit, MI
Thu Feb 15, 2018
I don't have an answer for this. I've been searching for info on how interest works on a land contract and this is as close as I've come to finding what I'm looking for.
0 votes
Carol Neudeck, Home Buyer, Niles, MI
Mon Nov 21, 2016
is it legal to have a land contract with out interest in Michigan?
0 votes
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