A1 How To

For starters let me state the obvious. If you sold a house or commercial real estate and are holding the private mortgage for the purchaser, you have a significant financial asset that can be marketed. This as any other financial asset has a risk and a value (value of the future stream of income ) that you can sell to other individuals or purchasers. Or if you own a house you need to sell, you can offer owner financing to get top pricing for the home, sell the home and then you can sell the note you are holding in a concurrent closing for an immediate payoff.

Many mortgage purchasers make the note buying process a mystery. And while not every mortgage private mortgage purchaser has the same requirements just like a stock mutual fund there are 5 principal factors that affect the price they will pay for a owner financed note. I have listed them below.

These primary factors are:

1. The equity in the real estate based on its appraised or estimated price or sales price. The higher the amount of equity , the higher the purchase price as there is less risk for the buyer.

2. Seasoning on the note, meaning it’s been around a while. In this illustration note purchasers are largely looking for a solid payment history. These private investors want to document that the private mortgage is being offered and the longer, the better. (Risk)

3. The rate of interest on the private mortgage. The higher the interest rate or spread as compared to a benchmark such as US treasuries, the higher the price paid. Private mortgage holders should be very aware of this factor for their asset. If, as many gurus foretell we go into a period of considerable inflation due to all the government spending, the value of their private mortgage could drop significantly. (Time value of money.)

4. The time remaining on the mortgage note (or balloon period). While this will have an effect the value, a number of private note buyers like longer periods than others. (Due to the time value of money)

5. The credit quality of the borrower. Most private mortgage buyers have set minimum credit score levels in order to purchase a private mortgage. Also a mortgage buyer may wish to to look at the mortgagors credit report for its history, recent bankruptcies, etc.

Note buyers will sometimes add a 6th issue, the size of the purchase price (Risk). The larger the monetary exposure, the less liberal they will be on the buyer’s credit, the amount of seasoning, etc.

One final thought about seasoning, in particular as it relates to the sale of a private mortgage through simultaneous closings. Obviously, if you sell a note formed from the sale of a property will result in the least amount of monthly seasoning for a mortgage. And while this would lessen the price a private note purchaser will to pay, if there is a good down payment or combination of a solid down payment and the property seller is willing to hold a second, this type purchase can be a very nice deal for the property seller. This is due to the home seller 1) Being able to sell the home much faster, 2) Usually fetching top pricing for the property and 3) Not having to pay real estate sales person’s commissions.

So that’s it, private mortgage note or mortgage selling exposed. I am hopeful this was informative.

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