# What is a typical interest rate for



## sisterpine (May 9, 2004)

an owner carrying a land contract? I know things have been up and down lately, interest rate wise and don't want to insult the buyer so I have no clue as to what interest rate to tell them for a land contract. All advice welcome! sis (this is for a 20 acre parcel, off grid, no covenants, seasonal good roads winter 4x4 roads. Hill side faces south west and has wonderful views. Spring to be developed is on the property. Thinking about telling them 1800.00 per acre but still working that one out. I would like to carry the contract so I can get the land back if they default.


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## Elevenpoint (Nov 17, 2009)

Anywhere from 0-10% based upon credit, down payment, market, supply and demand, etc.


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## Mickie3 (Aug 28, 2010)

Take a look at bankrate.com or hsh.com and see what the competitive rates are. Those sites will show you what the buyers can get elsewhere, so I would recommend getting a rate around those as you will not be able to get that high or a rate on anything else that I have seen lately (barring the 4+% I am getting on a high-yield checking, with a cap of 25k.)


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## po boy (Jul 12, 2010)

Bankrate and hsh are for Single family residence and the loan amount is much higher. That's like comparing apples to elephants.
Lenders don't like small loans and charge higher points on small loans or just won't do them.

Speak with a local bank and ask what they would charge for rate and down payment on a similar property.
There are not a lot of sources for financing for this type of property. Do not compare the rate and down payment to a single family residence.
Owner financed with 20% down would be reasonable if they have good credit. Rate about 10% or higher.


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## Mickie3 (Aug 28, 2010)

po boy said:


> Bankrate and hsh are for Single family residence and the loan amount is much higher. That's like comparing apples to elephants.
> Lenders don't like small loans and charge higher points on small loans or just won't do them.


Huh? Where are you getting that? I just got a land-only loan from a bank and that is simply not true. The rate I got was actually below what is shown on those web-sites.



> Speak with a local bank and ask what they would charge for rate and down payment on a similar property.
> There are not a lot of sources for financing for this type of property. Do not compare the rate and down payment to a single family residence.
> Owner financed with 20% down would be reasonable if they have good credit. Rate about 10% or higher.


The OP said they did not want to insult the buyer and if someone has 20% down and decent credit, a rate of 10% or higher will do just that as they can get a conventional or FHA-type of loan. The highest I was quoted was below 5 and if someone had told me they wanted twice the market rate for a "loan", would have made me think twice about the price on the property, as in "are they trying to rip me off on that as well?"


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## Micheal (Jan 28, 2009)

We own the house that the DD lives in. When we looked into "selling" it to her, we were told by a lawyer that to be on the "safe" side that the interest rate we should charge her should be no less then or within a 1/2% to 1% window of the going bank rate.......
Why this is so that incase something should happen to either the wife or me that no one could come back and say we signed the house over to DD trying to rid ourselves of assets.
In turn, most banks now set interest rates based on the borrower's credit rating; the worse (lower) the rating the higher the interest rate........
So I'd say dependent on how well you know these people or want to sell the property would depend on the rate you want to charge. But I'd stay within plus/minus 1% of a local bank's advertised rate.


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## baldylocks (Aug 15, 2007)

Mickie3 said:


> I just got a land-only loan from a bank and that is simply not true. The rate I got was actually below what is shown on those web-sites.


Mickie3 - what bank did you use or how did you go about finding it? We have a bank that will loan us money on land we are buying but the rate is pretty high we have great credit scores. Any thoughts would be appreciated!


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## JUllom (Dec 13, 2009)

My experience land contracts have been due to not being able to get a loan via bank. Therefore, the interest rate has always been 3% + higher than going rate. This is for two reasons - obviously, more risk, but to also encourage the buyer to get other financing as soon as they can and pay me off. Since you want to hold the note, I'd keep It reasonable based upon their credit score. I'd assume it will be 6-8%


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## willow_girl (Dec 7, 2002)

I charged my buyer 1% above the bank loan rate. I'm happy to hold the note; I figure where else can you get 6.5% with little to no risk these days?!


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## sisterpine (May 9, 2004)

JULLom- That is about what I am thinking. That I would decide the interest rate partly on their credit rating which I know they have been working to improve this past year or so. When we bought the land in 1990 the interest rate was at 10 percent and we had excellent credit- we just did not know enough to ask for a lower one LOL.


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## willow_girl (Dec 7, 2002)

Just a reminder ... remember that you'll have to pay taxes on the interest! If you have a bank collect and disburse the funds, they will issue you a 1099-INT; otherwise, you'll have to keep track of it yourself. (I can send you a spreadsheet you can plug your numbers into if you'd like.) 

It's probably a good idea to calculate how much you'll owe and set aside a little each month so you don't get hammered when tax time rolls around!


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## sisterpine (May 9, 2004)

Good point!


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## willow_girl (Dec 7, 2002)

Couple more tips for you. If you set things up with a bank to have them collect the funds, write it into the contract that the BUYER will pay the cost! In my case it was $100 to establish the account plus $10 per month (which was high if you ask me, but the BUYER wanted to go through a bank, and I certainly had no objections as long as he was willing to pay for it. Heh!)

There are a couple ways you can handle taxes on the land. One is an escrow, where the buyer pays 1/12th of the estimated taxes each month, and you disburse the payment(s) to the taxing authority when the bill(s)comes in. (Make sure, if you have a bank collect the payments, that they're set up to deal with an escrow. Mine wasn't, which resulted in an accounting nightmare for the first year as they insisted on applying the escrow payments to the principal. Luckily I was keeping my own set or books! Finally the bank hired someone who knew what they were doing, and we got it straightened out.  )

Another way you can handle taxes is to specify the seller must pay them and furnish you with a receipt. Make sure the contract specifies that a failure to pay the taxes on time is a breach which will make the contract null and void. 

The above also applies to insurance, although it doesn't sound as if there is a structure on the property, so you may be able to skip this part!


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## po boy (Jul 12, 2010)

Mickie3 said:


> Huh? Where are you getting that? I just got a land-only loan from a bank and that is simply not true.
> 
> The rate I got was actually below what is shown on those web-sites. *Yes, they may be true but still apples and elephants as they are two different things. Most Banks that are lending on land do short time and in most cases with a balloon in 3 to 5 years. That type of loan can give you a lower rate. In addition the bank is more lenient if you have funds on deposit in that bank.*
> 
> ...


*Conventional and FHA does not make loans on raw land. 10% is reasonable for long term financing on raw land with owner financing. *


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## po boy (Jul 12, 2010)

sisterpine said:


> JULLom- That is about what I am thinking. *That I would decide the interest rate partly on their credit rating which I know they have been working to improve this past year or so*. When we bought the land in 1990 the interest rate was at 10 percent and we had excellent credit- we just did not know enough to ask for a lower one LOL.


Use caution. How much downpayment do they have?
What are their credit issues?


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## KMA1 (Dec 9, 2006)

Just saw someone offering 5% here in North Alabama on 15 years with no down payment, but the land was way overpriced.


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## baldylocks (Aug 15, 2007)

We are looking at 7% with 20% down on raw land. As I mentioned, our credit is great so I expect that it could easily run much higher depending on your situation. Our owner doesn't want to owner finance so we will be using a bank...it's hard enough to even find a bank willing to talk. Anyone have any thoughts on that?


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## po boy (Jul 12, 2010)

Traditional mortgage companies just don't do them.

Try the bank you bank with first and if you have a good relationship with them, they may give you a good deal.

Next best is a bank local to the property.

Depends on the property type.. Look at some of the farm credit agencies


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## po boy (Jul 12, 2010)

Virginia: If they don't do them, ask for a referral to someone that does..
http://www.farmcreditofvirginias.com/
http://www.janusagfinance.com/virginia-commercial-farm-loans.asp

Google search [ame]http://www.google.com/search?sourceid=navclient&ie=UTF-8&rlz=1T4GGLL_enUS337US338&q=farm+loans+in+virginia[/ame]


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## Deb862 (Jun 22, 2005)

We had an owner contract when we purchased our land in Idaho about 7 years ago. Our terms were $5000 down, balance at 8% interest for 10 years. I've since found that some lending institutions will lend on bare land, but they are far and few between, especially in this economy currently. Two years ago I couldve gotten a loan through Farm Bureau or the local Wells Fargo on bare land at about 7% to 7.5% with 15% down and amortize 10, 15, or 20 years. Now, I recently rechecked with various institutions and the best they will offer is 8% to 9% with 20% to 25% down, and they were very honest with me and said that most places do not like to make land loans in the last year or so as, and I quote, "In our experience, when someone owns bare land that is usually the first thing they stop making payments on or go late on." Luckily, we also have great credit and an extremely low (almost nonexistant LOL) debt-to-income ratio and have that 20% down or we wouldn't be getting a land loan through a bank or other lender. We'd have to find an owner contract, which around the Northest is about like finding the proverbial needle in the haystack LOL.


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## Txrider (Jun 25, 2010)

sisterpine said:


> JULLom- That is about what I am thinking. That I would decide the interest rate partly on their credit rating which I know they have been working to improve this past year or so. When we bought the land in 1990 the interest rate was at 10 percent and we had excellent credit- we just did not know enough to ask for a lower one LOL.


I can tell you the local bank that financed me this summer did so at 7% and 20% down.

I don't live there and it's not a residence, so most banks wouldn't loan on land alone and see it as an investment. Easier to walk away from, higher risk.


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## Mickie3 (Aug 28, 2010)

Micheal said:


> We own the house that the DD lives in. When we looked into "selling" it to her, we were told by a lawyer that to be on the "safe" side that the interest rate we should charge her should be no less then or within a 1/2% to 1% window of the going bank rate.......Why this is so that incase something should happen to either the wife or me that no one could come back and say we signed the house over to DD trying to rid ourselves of assets.


The problem there is that if you went too low, it would look like a "gift" and you could be in for a hassle from the government wanting you to pay "gift taxes."



> In turn, most banks now set interest rates based on the borrower's credit rating; the worse (lower) the rating the higher the interest rate........


They have whole departments that do just that and know their jobs, in most cases. That is why it is so hard to get a reasonable rate, taking everything into consideration, as banks do. 


> So I'd say dependent on how well you know these people or want to sell the property would depend on the rate you want to charge. But I'd stay within plus/minus 1% of a local bank's advertised rate.


Amen!


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## Mickie3 (Aug 28, 2010)

baldylocks said:


> Mickie3 - what bank did you use or how did you go about finding it? We have a bank that will loan us money on land we are buying but the rate is pretty high we have great credit scores. Any thoughts would be appreciated!


I started out with the "big boys" and they didn't want to do a land only deal, but would approve a land and house in a heartbeat.

Then I started looking at the small, local banks and credit unions and hit paydirt. After wasting time filling out on-line forms for a few of them, only to be told that they didn't do land loans, I started calling them instead and asked a "loan officer" if they did land only loans. If they said "yes", I then asked for rates based on income, FICO score, etc. (Get your FICO for FREE (for real free, not a come-one deal at http://creditkarma.com) and then ask about closing costs. They should give you the info freely and if they don't just move on. I called at least 10 of the small banks, local to the property, and got some good quotes, some not so good. We looked at the rates, the losicing costs, etc. and decided to go with one of them. (We had gotten a "pre-approval" from them, in writing when we started negotiating for the property, so would not be hung out to dry.)

Another route to go is to take a look at the Federal Farm Loan agency http://www.fsa.usda.gov/FSA/webapp?area=home&subject=fmlp&topic=landing. They have some good rates and if you qualify for them, they have absolutely no problems making land only loans at excellent rates. 

BTW, we ended up with a credit union that costs us about 10$ to "join" and we opened accounts there.

Good Luck and Hang in there, its worth it!


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## Mickie3 (Aug 28, 2010)

willow_girl said:


> I charged my buyer 1% above the bank loan rate. I'm happy to hold the note; I figure where else can you get 6.5% with little to no risk these days?!


My sentiments exactly.


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## Mickie3 (Aug 28, 2010)

sisterpine said:


> JULLom- That is about what I am thinking. That I would decide the interest rate partly on their credit rating which I know they have been working to improve this past year or so. * When we bought the land in 1990 the interest rate was at 10 percent *and we had excellent credit- we just did not know enough to ask for a lower one LOL.



I had a loan on the house I am living in in the 1980s that was 15+% and had perfect credit. Refinanced that to under 6 by 1989. Rates were that high, then they dropped, but that means nothing today, its just like your 10% rate, interesting, but nothing other than ancient history.


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## used2bcool13 (Sep 24, 2007)

I am working with a realtor right now for land purchase and she said to offer 6.5-7% with 50% down. There were no inquiries into credit rating, even when she didn't know how much I was putting down. I was just told that Wells Fargo offers land loans, I am going to inquire with them also.


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## VeteranMntnFarm (Jan 4, 2011)

DO NOT APPLY TO ONLINE SITES OFFERING LOANS UNLESS YOU ARE SURE THOSE SITES ARE TRUE SITES BECAUSE MANY SCAMMERS COME TO SITES LIKE THIS TRYING TO GET PEOPLE TO INPUT THIER INFO THEN STEAL THEIR CREDIT AND BE WARY OF PEOPLE OFFERING SITES HERE OR AT ANY CHAT BOARD 

I got mine for 5.8% at a local bank that doesn't sell their mortgages and my house was previously uninhabitable


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## po boy (Jul 12, 2010)

VeteranMntnFarm said:


> DO NOT APPLY TO ONLINE SITES OFFERING LOANS UNLESS YOU ARE SURE THOSE SITES ARE TRUE SITES BECAUSE MANY SCAMMERS COME TO SITES LIKE THIS TRYING TO GET PEOPLE TO INPUT THIER INFO THEN STEAL THEIR CREDIT AND BE WARY OF PEOPLE OFFERING SITES HERE OR AT ANY CHAT BOARD
> 
> I got mine for 5.8% at a local bank that doesn't sell their mortgages and my house was previously uninhabitable


Land loans and loans where the house does not meet agency guidelines are normally underwritten and priced based on that bank's guidelines. It will vary by bank...

How was your 5.8% amortised?
Do you have a balloon?


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## VeteranMntnFarm (Jan 4, 2011)

I have a fixed rate 10 yr mortgage and they did want the house insured even though it was considered not worth anything by the realtor listing it. Thankfully there is a company called fair plan in many states that will cover cabins etc that are not normal houses qualifying for regular mortgages sold on the open market. However fairplan does not give liability i had to get a private company for that and i got one for 50.00 a yr for 100k


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## Mickie3 (Aug 28, 2010)

VeteranMntnFarm said:


> I have a fixed rate 10 yr mortgage and they did want the house insured even though it was considered not worth anything by the realtor listing it. Thankfully there is a company called fair plan in many states that will cover cabins etc that are not normal houses qualifying for regular mortgages sold on the open market. However fairplan does not give liability i had to get a private company for that and i got one for 50.00 a yr for 100k


Sounds like you dealt with someone like I am dealing with, that is, a local bank that, while pretty conservative, is pretty reasonable as well. 

Also, sounds like you have all your bases covered. I was naive and didn't know that I needed a liability policy in case some dimwit trespasses on the property and hurts themselves, but I guess I do. 

Congrats!


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## sisterpine (May 9, 2004)

Ok so I am ancient I admit it, so is my history LOL IN any case I will wait till spring and see what they want to do. The have the option of buying the whole shebang (house and 40 acres w/ shop, guest cabin and large greenhouse for 160K) or just 20 acres for 30K. They say they will go VA for the house and I found out it does qualify even with the biolet toilet. Time will tell, maybe they will change their mind in the spring....


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