What Interest Rate for Owner Financing?

[Kathryn Bowden]

We have agreed to owner finance our primary home for a short term balloon loan.  30 year amortized, and then a balloon at about 16 or 18 months, still working on the details.  They do qualify for financing now, but for various reasons we decided to do this (I won't bother going into why since that's not the point of my question).  My question is what tends to be a standard range  to charge on interest above prime or what a bank would give them, for providing the owner financing.  Like one (1)% above prime?  More?  Yes, I know it is whatever we want or agree upon.  I'm trying to know what tends to be a standard and is considered fair for both parties.  Thanks in advance.

[Kathryn Bowden]

Well, for whatever it's worth - in case it makes a difference - the buyers needed to wait to file their 2017 taxes on January 1st.  They are self-employed and need to show their income for 2017 to qualify.  They wrote off everything and the kitchen sink previous to this, plus their income is increasing substantially.  Their loan officer (known as a competent and respected guy around here), has provided a pre-approval letter based on their bank statements.  They have also agreed to pay for an expedited appraisal because of the delay in underwriting.  There's a little more to it than that, but we agreed it would be in everybody's best interest for us to give them a short term loan.  We have also been in this house 4.5 years and just learned about the new tax rule pertaining to this.  We have a contract prior to 2018, but if we lose this deal we'll be stuck waiting to list this place till April - we'd be foolish to not wait the five years, but we need to sell now.  We'd also like to know for sure this deal doesn't fall through with the bank loan, plus we would be closing end of December with our owner finance, before the new tax bill kicks in,  just in case something else changes on that bill that would take away that pre-January contract exception.  So it is in both our interest's.