A mortgage note is a financial document detailing the payments for a loan used to buy a property. Those who hold one for a home, business, or other property can sell it and get a lump sum of cash. While that sounds enticing, before leaping in, you’ll want to know how to make money with mortgage notes and get the maximum amount you can.
The average mortgage loan as of January 2017 was $309,200, according to The Motley Fool’s Million Acres site. Still, no matter what the principal of your mortgage is, you won’t be getting that exact amount. The better news is that you can still receive a significant offer – and you can get the highest amount possible by following some industry tips.
Selling Your Mortgage Note
First, you’ll want to know how to sell your private mortgage note. While it might sound complicated and require quite a bit of time and effort, the process is relatively simple. There are plenty of companies out there willing to purchase your mortgage note, taking on the risk as the notes are backed with collateral. You’ll need your trust deed or mortgage, and to find the best company to work with. Typically, you’ll complete an online form or make a phone call to get an offer. The offer is based on the current market, the terms of the note, property appraisal, and the company’s rates. Most companies will provide an attorney, so you don’t have to shell out thousands of dollars for a real estate lawyer.
Getting the Best Value For Your Note
Insider industry experts say there are several ways to get the best possible value for your mortgage note.
Your buyer has decent credit. The higher the credit score of your borrower/property buyer, the more money you’ll be able to get for your mortgage note. Most notes that are owner financed are completed because the buyer has less than stellar credit, which is okay. Still, if it’s below 580, the note might be challenging to sell. Again, the higher the score, the higher your offer is likely to be for the note.
The note includes land and a home or building. Contracts that include both are generally more likely to be approved.
The down payment. The cash that you received from the buyer at the time of the sale, or down payment, determines if the note can be sold. The note will sell for more money, the higher the down payment is. If the buyer only put down 5%, for example, you’re unlikely to get much of an offer, and you may not get one at all. Typically, it should be at least 10%, but you’ll get a more significant offer if the down payment is between 20% and 30%.
Shorter terms. Mortgage notes with shorter terms will get you a larger offer.
Current interest rates. If the current interest rates are low, the value of your note will increase. If they’re higher, you may want to wait until they start to dip. If the interest rate attached to the note exceeds the maximum usury law amount where the property is located, the note will be worthless to note investors.