Selling your Mortgage Note? Know the 5 Things Note Buyers Will be Looking at in Your Note
Your mortgage note is a valuable asset that may be worth hundreds of thousands of dollars. You owe it to yourself to understand what a potential note buyer will be looking for before you go into the market place.
Here are the 5 most important things a note buyer will consider before buying a note. And these are the same 5 things that a professional note broker will clarify before giving you any kind of quote.
1) The credit of the payor
Credit scores and credit ratings and the rating agencies are all hot topics in the real estate industry. The scores are based on certain assumptions and are dependent on the source data being accurate. But a lower than average FICO score may not make your note unsalable. Although the scores are a starting point, I’ve learned that good note buyers will look for mitigating circumstances that cause the score to be low. One might be that the payor had a serious medical issue arise which caused them to over-extend their credit. However, if since that time they have been consistent in their debt repayment and are consistent in their mortgage payments, the low credit score will not be such an important issue.
2) The equity stake the payor has in the property
You’ve all seen ads:”0% down, interest only payments for the first 12 months, move in today!”. What this describes is a situation in which the buyer has taken 0% equity in the property. They are basically renters dressed up like property owners. They have no stake in the property and could walk away tomorrow if things get tough. And millions of people did just that in our recent real estate bubble burst. No note buyer will even look at such a note. The risk is just too high that they will be left holding the note, having to foreclose and resell the property. Most note buyers don’t want to own the property any more than mortgage companies or banks do; they want to own the income stream from the mortgage payments. A high equity stake in the property also means that the buyer could sell the property more easily if they ran into financial trouble.
3) The ability of the payor to keep making payments
If the note buyer is looking for a long-term income stream from the note, then a critical factor is the evaluation of the payor’s ability to keep making payments. Other Important factors include job stability and the mortgage payment as a percentage of total income in determining the risk involved in holding the note.
4) The property itself which is the collateral for the note
This seems like a no-brainer, but the trick is in establishing the true value of the property. Sellers tend to overvalue their property since they need to justify the value of the note. Note buyers will tend to be skeptical of this and usually get an independent appraisal done. Also, the ratio of equity to the type of property will be a factor. A small percentage in a well built, modern home in a good neighborhood will outweigh a high equity in a single-wide mobile home in a run down mobile-home park.
5) Seasoning
This doesn’t refer to how “spicy” the note is. It is a term used to describe how long the buyer has been making payments. Along with equity discussed above, this is an indicator of the risk that the buyer will walk away from the property. For some note buyers this will be 3-4 months; others may want as much as 6 months payment history.
As a broker whose job it is to clarify all these things before contacting one of my investors, I know how this can speed up the process. It is also important to know that in this present market, there are more notes for sale than there are interested buyers. So the less they have to do in research on the note, the easier it is for them to at least consider it.
Free, confidential, no-obligation assistance in structuring your note or help in finding a buyer for it is available at the following site. Under the “Mortgage Notes” tab, scroll down to the “note request form” link.
About the Author
I am a retired businessman who has discovered the joys of article marketing. I am using this platform to promote my own businesses and am now being asked by others to help them as well.
I am a broker in the area of alternative commercial finance and in cash flows. I am also learning the ins and outs of affiliate marketing and find this to be a great way to earn money and be able to stay at home and set my own hours.
Investors United Mortgage Note Instructor – Roger Turek
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