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Mortgage Note Investing Explained

December 22, 2021

What is Note Investing?

Broadly speaking, mortgage note investing is the practice of purchasing real estate notes for the purposes of generating profits. that could mean profit from interest payments, or profits gained from the sale of the real estate or of the note itself.

A real estate mortgage note is a promissory note secured by a mortgage loan. It’s a way of saying promissory notes secured by a piece of property. That security instrument can be either a mortgage or a Deed of Trust. It depends on what state you’re doing business in or which security instrument you’re using.

When a home buyer or investor wants to buy a house but isn’t able to pay cash at closing, they get a loan. They pay part of the purchase price as a down payment and borrow the remaining amount from a bank or lending institution. In exchange for the money, the lender has them sign a promissory note and a mortgage.

A promissory note, often just called a note, is signed by the borrower and is a promise to repay a debt. This document outlines:

  • who borrowed money from whom,
  • how much was borrowed,
  • the interest rate of the loan,
  • the timeline for loan repayment, and
  • what happens in the event of default.

A mortgage is a separate document that collateralized the lender. In short, it says that the lender can take possession of the home if the borrower stops paying. It outlines:

  • the roles and responsibilities of the lender and the borrower,
  • what would qualify as a breach in the agreement, and
  • what property the mortgage is tied to.
  • These two documents do different jobs, but they go hand-in-hand. You would never create or buy a note without a mortgage and vice-versa.

Different Types of Real Estate Mortgage Notes

There are both commercial and residential mortgage notes, and both are open to investors. They’re both promissory notes secured by a certain property. All mortgage notes should specify the roles and responsibilities of all parties and what qualifies as a breach of the agreement. One of the major differences between real estate mortgage notes is the loan terms.

Fixed-Rate Mortgage Loans

A fixed-rate mortgage or FRM is a loan that has a fixed interest rate and set payments. This is the most common type of mortgage offered by banks, but it can be offered by private individuals. The greatest benefit of this loan is that the borrower has the same payment every month.

The Graduated Payment Mortgage

The graduated payment mortgage or GPM has a fixed interested rate with adjusting payments. It typically has a low initial monthly payment that increases over time. These loans are sometimes used for student loans, but they can be found in real estate, too. This is a type of negative amortization loan. There is a risk that the person who purchased the home will be unable to make the later, higher payments.

An Adjustable Rate Mortgage

An adjustable-rate mortgage or ARM has an interest rate tied to some third-party indices. Banks will tie the interest rate on the adjustable-rate to the interest rate offered by the Federal Reserve, and the interest rate on the mortgage will rise and fall with it. This is why they’re sometimes called variable-rate mortgages. For consumers, the ARM may result in lower payments when interest rates are low.

A Balloon Payment Mortgage

A balloon payment mortgage is generally a fixed-rate mortgage with a large payment due at the end. This is in contrast with traditional mortgages where the final payment pays off the debt entirely. Balloon payments may be accepted by a borrower who can’t manage the monthly payments without them.

The Interest-Only Loan

An interest-only loan is a mortgage where the person only pays interest on the loan. Some people take out an interest-only loan because they can’t afford to pay on principle. This borrower demographic is very high risk. Yet interest-only loans are attractive because of the low monthly payments. This is a popular loan for property developers. You get the money to buy the property. You expect to sell it for a profit and pay off the mortgage note.

Advantages of Buying a Real Estate Mortgage Note

  • High Yield Returns – Rates of return that are higher than the bank’s traditional low yield bonds; and higher than most stock dividends.
  • Monthly Income – If you are looking for additional monthly income for retirement, for living expenses, or to build your savings account, we can help.
  • IRA Friendly – This investment provides investors with a way to put to use their self-directed traditional IRA or Roth IRA.  We can recommend several custodian companies that handle the paperwork and hold your IRA while the funds are invested with us.
  • Rollover Option – Option to automatically roll over your investment so you don’t miss out on earning interest or future investment opportunities.

How to Get Started in Note Investing

So, how do you get started in mortgage note investing? Well, first you need to figure out what you want to achieve and what risk you are prepared to take. Are you looking for passive income with minimal risk? or do you want to risk more and go for the big wins?

You also need to continue with your education. That is a constant. The note investing game is very complex and full of nuances. Find yourself a mentor if you can, and when it comes to making your first note investment, start small.

Remember, note investing is not a magic bullet and it won’t make you rich overnight. Be wary of ‘educators’ that charge thousands of dollars for note investing courses. They are generally making their money from the fees you pay, not from actually investing in notes. All of the information you need is out there in the public domain.

You might find mortgage notes for sale by going through for-sale-by-owner groups and making offers to former property owners who are desperate for cash. Furthermore, mortgage notes may be sold by real estate investor groups or real estate investment trusts.

In the latter case, you could even buy a mortgage for a multi-family apartment building. If you are buying a nonperforming mortgage, investing in real estate notes is one of the cheapest ways to acquire such properties.

 

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Buy & Sell Discover How to Sell a Mortgage Note & Create Maximum Value Mortgage Note

What Are The Benefits Of Selling A Note?

December 9, 2021
Sell Your Mortgage Note

Mortgage notes are the promising notes that are issued against a mortgage loan, wherein the note owner promises to repay the loan amount within the specified time span. 

Now-a-days, selling and purchasing of mortgage notes has become a major part of real estate services offered by various investment firms in the US. 

Selling mortgage notes is a favorable way of investment that comes with an array of benefits for both sellers as well as buyers. 

Benefits of Selling a Mortgage Note

Note holders who choose to sell their private mortgage investment achieve a number of important benefits:

1.) They convert an uncertain stream of future note payments into an immediate lump sum of cash;

2.) They eliminate the risk, cost and hassle of needing to foreclose on the note in the future;

3.) By having cash and being liquid, they put themselves in a strong position to make a major purchase or investment;

4.) They will be able to pay off credit cards and other debts that are charging a high rate of interest;

5.) They won’t have to worry about the monthly payments they receive slipping away on life’s little expenses;

6.) They will liquidate their note investment while interest rates are still low and the market value of their mortgage is at its highest.

How Holding a Note Benefits the Seller

Though owner financed homes are not common, sellers would not hold notes if there was no benefit to it. 

The primary benefit of holding onto a mortgage note is the monthly income. After the down payment is accepted, they’ll receive monthly payments, plus interest, from the buyer for the length of the contract. When you don’t require a large amount of money right when the home is purchased, holding a note is a great way to add an extra source of predictable income secured by real estate.

Offering the option for owner financing may also draw in more potential buyers. Without needing to work through the mortgage process with a bank, some buyers may be more attracted to your home and it could sell much quicker. Closing can take up to two months or more in some states when mortgages are involved, so holding onto the note allows you to potentially get your home off the market and money in your pockets within a few weeks.

Advantages for Note Sellers

If you’re a seller, you have to understand all the benefits that you can avail by selling your mortgage notes. These are simply listed below:

  • You can convert long-term investment into an immediate cash source.
  • This liquid cash can help you handle any financial crisis with ease and take advantage of quick investment opportunities available.
  • No sooner do you sell your note; you receive a substantial amount of money immediately.
  • You need not worry about property taxes or insurance premiums, as all these things will be handled by the private investor.
  • You need not worry about installments anymore.
  • You have an opportunity to increase the return you earn from the asset by reinvesting the sale proceeds in better performing financial products.
  • You get access to display your notes for sale and expose it to a large pool of investors. It increases the chances of selling your note at much higher prices.

How Holding a Note Benefits the Buyer

Holding a mortgage note also benefits the buyer. As mentioned above, the biggest advantage is not needing to deal with getting a mortgage from the bank. 

This can be a long and stressful process for many families looking to move into a new home. With an owner financed property, buyers will be able to come to an agreement and move in much sooner.

It is also possible that owners holding the note will have more lenient qualifications, allowing buyers to purchase a home they may not have been able to otherwise. 

If a buyer has less than a 20% downpayment, they will not need to purchase private mortgage insurance (PMI). This is required by many banks if the minimum downpayment is not able to be met.

Advantages for Note Buyers

  • Note investors or the buyers are the companies with the great financial abilities to purchase mortgage notes at a higher scale. They majorly purchase mortgage loans that are in the form of home loans or anything secured by real estate and they can be anything from $10,000 to millions. And another matter of fact is that all the dealings done by the note investors are done against cash, be it of any amount.
  • When dealing with private investors, selling and purchasing of mortgage notes is as easy as a piece of cake. When landing a good buyer investor, top real estate services and tremendous opportunities are offered to note investors in town, and help them to create solid returns with relatively low risk. Investors seek better opportunities and help them understand how it’s fruitful to invest in projects secured by real estate.

Each mortgage holder will have a unique set of reasons for selling their mortgage note investment. The benefits you enjoy will be your own.

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Why Do People Sell Mortgage Notes?

December 9, 2021

Why do people, especially homeowners, decide to sell their mortgage notes? What motivates them to sell? 

The leading motivation for people selling mortgage notes is obtaining a large sum of money in a timely manner. For homeowners who need immediate cash flow, one option is to sell mortgage notes. Both private homeowners and real estate investors can sell notes to fund personal expenses or business ventures.

Depending on how much money you require, you can arrange one of these selling options with a buyer:

  1. Sell the entire note.
  2. Sell a specific dollar amount.
  3. Sell a percentage of the mortgage payment.

Why Sell A Mortgage Note?

The most common reason people, specifically private mortgage holders, decide to sell their mortgage note is to get hold of a lump sum of money to handle immediate needs.

Selling a note is a decision that is not always right for everyone, but can extremely be useful or profitable for many people with notes.

Selling your mortgage note would achieve other financial goals. Here are some of the most common reasons people sell their mortgage notes:

  • Invest in new real estate ventures.
  • Moving money to a different investment.
  • Obtaining a lump sum of cash
  • Build up emergency savings.
  • Stash extra money for retirement.
  • Pay off medical bills.
  • Pay off student loans.
  • Buying a house
  • Afford expensive home renovations or repairs.
  • Funding a family milestone, such as a college education or wedding
  • The need to divide an estate
  • The need to divide marital assets, which include a mortgage note
  • Concern about the risk of being a lender
  • Sometimes a homeowner turns to offering a private mortgage note to sell a house quickly, because the buyer is able to then bypass the traditional bank mortgage approval process. In these cases, the new note owners can sell the note quickly to receive the lump sum they needed all along.

So Why Should You Sell Your Mortgage Note?

One of the benefits of owning a private mortgage note is that it’s an easy investment to quickly liquidate. Some owners find that they’d rather have a large lump sum in lieu of a slow trickle of scheduled payments. Other owners sell a portion of their future payments to get a lump sum to handle a sudden financial need.

Why Would I Want to Sell My Loan for Immediate Cash Now?

When you convert part or all of your loan into cash, you gain several advantages in addition to immediate cash:

1.) You don’t have to worry about the payments you receive each month slipping away on life’s little expenses.

2.) You receive a substantial sum of cash right now, enough to accomplish some important goals.

3.) You don’t have to worry about collecting monthly payments or servicing your contracts; we handle all of that.

4.) You don’t have to worry about whether the taxes and insurance premiums are paid each year to protect your investment; we handle all of that.

5.) You don’t have to worry about whether your Borrower will continue to make his or her payments.

5 Reasons to Sell Your Mortgage Note Now

Those items aside, here are the top five reasons to seriously consider selling your note for cash today.

1.) The Housing Market is High

We have been there before haven’t we? You really don’t need a crystal ball to predict what is going to eventually happen.

Whether you want to call it a “crash” or a “correction,” the bottom line is that it can affect your pocket book if your payor becomes upside down in the property and ends up owing more on the note than the property is worth.

2.) Interest Rates Are Low

We have had a long run of banks lending money again. And buyers have been taking advantage of low rates.

Meaning, at this stage of the game, you most likely should have had a cash buyer or one that qualified for a bank loan. At the very least, if you charged a good interest rate, your payor should have seriously considered refinancing.

It could be time to cash out and keep your money.

3.) Stability

Let’s face it, the world is moving at a much quicker pace than it used to. The stock market moves the second a politician says something. Trade wars could go in our favor…or not.

All this turmoil makes for a lot of variables that don’t work in your favor. Don’t get us wrong…it could go very much in your favor…but it is a great unknown.

The question to ask yourself is would you rather roll the dice on the future economy, or ‘cash out’ and budget based on what you know you have?

4.) Seize the Day

The future is no place to place your better days. Maybe it is finally time to go on that trip to Europe, on a Caribbean cruise, remodel the house, or simply take a quiet family vacation on the lake.

Whatever you have been putting off for the future, maybe the future is now.

5.) Re-Align Your Goals

It is possible that you never really wanted to carry back a note in the first place, or it didn’t quite work out the way you hoped.

You don’t owe anybody any reasons for the change. We get it. Life happens. Situations change.

No matter what your reason for selling your note, we are here to help with a No Obligation Quote on what the fair market value of your note is today.

Did any of those reasons ring true to your current life situation? Are you thinking, “It’s time to sell my mortgage note.”? If so, request a FREE quote today and find out the value of your mortgage note. We have cash for your note now!

 

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Mortgage Note

Mortgage Notes | Different Classes And Types

October 26, 2021

Mortgage Notes | Different Classes And Types

There are two broad categories of residential real estate notes or mortgage notes that you can invest in – performing notes and non-performing notes. 

Performing Mortgage Notes 

If a borrower has paid their mortgage on time and never missed a payment, the note is “performing.” These are notes where the borrower is making their scheduled payments. As an investor, the primary focus is on current income. 

Performing notes are typically more expensive. While you can buy them at a discount, it’s typically only a slight discount from the remaining balance of the note.

Non-Performing Mortgage Notes

If the borrower has stopped paying their mortgage note, they’re in default. Typically, if borrowers haven’t paid in the past 90 days, their loans are categorized as “nonperforming.” Non Performing notes are sometimes called distressed notes.

These are generally sold by banks and other financial institutions and are sold at generally very deep discounts, perhaps between 50-90%. Since the borrower is not making their scheduled payments, the goal as an investor is to either modify the loan in conjunction with the homeowner, reach a lump-sum settlement with the homeowner, or foreclose on the property if needed. 

Non Performing notes are often sold at steep discounts from the balance owed or the value of the property, whichever is less. Pricing is also higher on first-lien mortgage notes compared to junior liens. The more secure the position, the higher the price.

The Different Types of Mortgage Notes that are Most Common

Secured

A secured loan is a loan that uses assets as collateral. Because the property is being used as collateral, the mortgage note may include a lower interest rate and longer payment term. The lender takes less financial risk with a secured loan and can make a better deal with the borrower. A loan secured by a property is known as a collateralized loan.

Unsecured

The other type is an unsecured loan, with nothing to back them. If the loan is unsecured, there’s nothing collateralizing the loan.

Private Loan

In a private mortgage note, a borrower makes payments to an individual entity directly. A private loan may occur when the lender owns the property outright. In this case, the lender is less regulated and can set up the note to their liking.

Private financing is when an individual (as opposed to a bank) directly lends money to a borrower (usually to purchase a home) who either can’t or doesn’t want to get a traditional loan from a mortgage lender. 

The borrowers then typically make a monthly mortgage payment to the individual as they would to a bank.

Institutional Loan

An institutional loan is a loan from a traditional mortgage lender or bank. These loans are heavily regulated, and, therefore, the note must adhere to standard interest rates and payment terms.

An institutional loan means a bank or lending institution created the mortgage note. These loans have strict laws and guidelines for underwriting. They’re held to a higher standard than private loans and must comply with the Dodd-Frank Act and Bureau of Consumer Financial Protection regulations.

 

 

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Mortgage Note Investment | An Overview

October 25, 2021

Mortgage Note Investment | An Overview

Mortgage note investment or real estate note investment is a real estate investing strategy that might be appealing to beginner real estate investors for its obvious simplicity compared to buying a rental property.

Most newbie investors in the real estate business start with a traditional method like rehabbing or buying and holding single-family rentals. They might also invest in commercial real estate like apartments, storage, or strip malls, too.

Depending on how you manage the assets, these methods of investing can be great ways to generate income, receive tax benefits, and build wealth — but they aren’t the only ways.

Mortgage notes are an alternative advantage category within active real estate investing. They have many benefits and present unique opportunities. They also earn higher-than-average returns for real estate investments.

What Is A Mortgage Note?

Mortgage notes, or real estate notes, are legal documents that describe a loan and create an obligation for it to be repaid. It is a document that ties real property to the note as collateral for the loan. A note defines how much money was borrowed by whom, from whom, and it defines the terms of the borrower-lender agreement. For instance, it states a time frame for repayment and the rate of interest to be collected by the lender.

What Is Mortgage Note Investment?

Real estate investors make money with mortgage note investing through buying mortgage notes from lenders who no longer want them. Essentially, they purchase the debt. As a result, the investor is able to collect mortgage payments and interest much like banks do.

When you buy a mortgage note and mortgage, you’re buying the debt that remains to be paid on the note, secured by the asset outlined in the mortgage. You’re not buying the property — you’re buying the debt and secured interest in the property.

Essentially, a note buyer steps into the shoes of the bank. You can now collect the remaining debt on the note and receive the monthly payments. You can also take legal action to regain title in the event of default.

While many loans are bought and sold at full price, some can be bought at a discount. If the loan is nonperforming, or the note holder needs to sell the note badly enough, they may be willing to part with it for less.

Benefits of a Mortgage Note Investment

The benefits of a mortgage note investing are definitely attractive and some real estate investors are able to make this method work for them.

With mortgage note investing, you can reap the following benefits:

  • Truly passive income (you don’t have any of the hassles of maintaining an investment property).
  • The chance to help homeowners retain their property by being flexible with terms.
  • Lower on-going expenses (most investors hire a servicer to handle the note for a small, usually $20-$50 monthly fee).
  • A potentially higher return on investment, as you can negotiate your own interest rates.

Disadvantages of Mortgage Note Investment

On the other hand, mortgage note investing is a risky business that is not suitable for most people who are looking to get into real estate.

Some of the downside to real estate note investing include:

  • There’s always a risk that the borrower will default. As with all credit investments, the danger is that the borrower will stop making payments. 
  • It is difficult to determine the profitability of a particular note investment because there are too many variable factors. Unfortunately, an investor cannot determine this factor before purchasing a mortgage note.

Investing in real estate notes is generally the purchase of an existing mortgage. And when you purchase a mortgage note, you become the lender. You have all the rights of the lender. You don’t own the real estate, but you have a right to take the collateral if the borrower doesn’t pay.

Whether you’re curious about investing in notes yourself or partnering with a private investor such as Mikk Sachar here, we are always willing to jump on a quick call to help point you in the right direction.

 

 

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Selling Real Estate Notes – How To Maximize Your Value

October 18, 2021
Selling Real Estate Notes

Selling Real Estate Notes – How To Maximize Your Value

Before we discuss what it takes to selling real estate notes, it’s important we understand exactly what a note is.  Truth is, there are a vast amount of people looking to sell real estate notes that are simply worthless.  Your’s could be as well if you don’t understand the following basics.  

Without the correct understanding of a real estate note and having the correct, legal documents in hand, you could find yourself barking up the wrong tree if you desire to sell a mortgage note.  

For a thorough understanding of mortgage notes and everything you must pay attention to if you’re ready to sell a real estate note, please read on.   

First Things First, What Is A Note?

A mortgage note (also called a real estate note or promissory note) is a legal contract between a borrower and a lender that obligates the borrower to pay the loan/mortgage off in a given time frame.  The contract creates a lien by pledging real property as security for a debt.  Mortgage notes go hand in hand with the deed of trust note, which transfers ownership of the property from the seller to the buyer. 

Simply put, it is a legal document that serves as an IOU from a borrower to a creditor or an investor. 

For the actual legal mumbo jumbo definition of a mortgage note, you can also visit this mortgage note definition here.  

What Information Is Needed to Create a Mortgage Note

The creation of mortgage notes can be confusing because in general they contain a lot of paperwork.  However, a simple checklist as below can serve you well if you plan to create a mortgage note yourself.  

In general, in order to create a legally binding mortgage note, you must have at least the following information in your contract.  

  • The total $$$ amount borrowed. 
  • The interest rate being charged on the note and whether or not it is a Fixed or Adjustable rate. 
  • The date payments are due. 
  • The loan term.  Is it for 30, 20, or 15 years or somewhere in between?
  • The place where payments are to be made.
  • Payment schedule.  Are the payments to be monthly or bimonthly?
  • Is there a balloon payment? Meaning, are you obligated to make a much larger payment in the future versus your normal monthly payment?
  • Is there a prepayment penalty on the loan?  Meaning, will you be penalized if you pay off the loan too early?
  • Down payment?  Does the mortgage require a down payment?  If so, how much?
  • Late payment consequences?  What happens if you don’t make your monthly payment on time?

Simply put, in order for a proper mortgage note to be created, it must have at least the above items addressed somewhere in the paperwork.  Believe it or not, there are people who create mortgage notes which they one day hope to sell but they don’t address all the important factors above.  

If not done properly, the mortgage note you created could be worthless.  This is why it’s in your best interest to use a qualified attorney to create your mortgage notes.   

What Are The Different Types Of Mortgage Notes

There are several types of mortgage notes in existence.  To make the understanding easy however, mortgage notes can be broken down into the following sub categories:

  • Secured
  • UnSecured
  • Private
  • Institutional

A Secured Note is one which is considered to be collateralized which simply means there is a tangible asset tied to the note.  In other words, if the borrower enters into a secured note contract and fails to abide by the note terms, the lender can take legal action to take ownership of the real estate or asset that was used as the collateral.  

In the world of mortgage notes, the real estate associated with the contract is the collateral.  In the world of a car note however, the car is the collateral.  In general, anything can be used as collateral when creating a secured note.  

An Unsecured Note on the other hand is pretty much the opposite of a secured note in that there is no asset pledged as collateral for the note.  As such, an unsecured note is understandably riskier than a secured note.  

A Private Note is simply a note created by a private individual.  For example, if you were looking to sell your car to someone in the form of payments rather than a lump sum amount, when and if you created a note to legally bind that contract, you basically created a private note.  

If you were to create a Private Note when selling a home, it is also sometimes referred to as a seller carry back or seller financed or owner financed notes.  These types of notes are typically common when and if a seller has a lot of equity in their home at the time of sale.  

When creating private notes, one has a lot more leeway in the terms of the note and the primary subject of this article is going to be about the sale of private notes.   

An Institutional Note however, is pretty much the opposite of the Private Note, in that it is created by institutions such as banks or credit unions.  When thinking of mortgage notes, this is what most people are referring to. Institutional notes must adhere to much stricter guidelines than private notes because they must comply with the Dodd-Frank Act and Bureau of Consumer Financial Protection regulations.

Why Would Someone Want To Sell A Note?

Now that you know the basics of what a mortgage note is and the different types of notes, let’s quickly cover why someone would want to sell a note.  Before we continue however, I want to reiterate that the content of this article is mainly about the sale of private notes. 

People look to sell their mortgage notes for a myriad of reasons.  The most common reason however is that the note holder simply wants a lump sum of cash now rather than waiting for monthly payments.  

The reason for wanting cash now could be a result of so many different reasons.  The most common however seem to be the following:

  • Need cash now to pay medical bills;
  • Need cash now to pay down debt;
  • Need cash now to invest in an alternative investment that has a better yield;
  • Need cash now to buy another house.  Perhaps when you sold the house with owner financing you were ok with that because you wanted to rent… but now that you are ready to buy another house, you need the cash;
  • Need cash now to pay for children’s college tuition;
  • Need to liquidate the asset because of a divorce; and/or
  • Want the cash now because you are worried about the guarantee of future payments

As you can see, there are numerous reasons why people want to sell their mortgage note.  In the end however, it usually comes down to one thing.  The seller simply wants a lump sum of cash.  It’s usually as blunt as that! 

How Exactly Do I Sell My Note?

Ok, so by now  you have learned exactly what a mortgage note is and have decided you want to sell it.  

Great… Now what?

Well, the next step of selling your mortgage note is pretty simple.  You just need to find a buyer.  

It just so happens I’m a buyer of mortgage notes and would love to make you a cash offer.  To make the process simple for you, I’ve actually created an eBook titled “The Note Holder’s Guide” which provides you all the details you would ever need to know about mortgage notes and how to sell yours.  

In the back of the ebook there is a Price Quote Form that you can complete and email to me at mikk@rehabvault.com and I’ll start working up an offer for you right away.  

To get the ebook simply click here and fill in the form in the top right to download the ebook.  

Here is a simple checklist of things you’ll need to sell your mortgage note.  

  1. Gather up ALL the documents you and your borrower signed when the mortgage note was created;
  2. Fill in the Quote Form you receive with the above ebook and email that to me with all your supporting documents above;
  3. Wait for me to contact you for any additional information I would need to get the offer ready;
  4. Review the offer and decide if it works for you;
  5. Once agreed, sign some simple additional contractual documents with me;
  6. Wait to hear from me about a time for closing;
  7. Go to the closing – or in most cases it’ll be done by mail – and enjoy the cash you receive delivered either through wire or overnight check

It’s pretty simple really.  

How Much Is My Note Worth?

By now I’m sure you’re wondering how much your note is actually worth and how much cash you will receive.  

It’s actually a great question and a very common one.  Unfortunately there isn’t a simple and straightforward answer.  

The reason is because the value of your mortgage note depends on several different factors.  These factors range from:

  • What balance remains on the mortgage note compared to the collateral/home’s value?
  • What type of credit does the borrower have?
  • How much down money did the borrower give you?
  • What type of payment history does the borrower have?
  • How many years remain on the note?
  • What’s the interest rate on the note?
  • Is the rate fixed or adjustable?
  • Is there a balloon payment on the loan?
  • Is there a prepayment penalty on the loan?
  • Are home’s in the area increasing or decreasing in value?
  • What type of property is it?  Residential? Commercial? Vacant Land?

As you can see there are a lot of different variables that affect what a note is worth.  The best way to really discover what it’s worth is to submit a price quote form.  

One thing I can tell you for sure however is this; when selling your real estate note, you won’t get 100% of the principal balance that remains on the note.  Note buyers or investors are always looking to buy a note at some type of discount in order for the purchase to make sense as an investment.   

How Can You Increase The Value Of Your Note?

If you’re ready to sell your note, here are some quick tips on making sure you get the best value for your note. 

  1. Make sure you have access to all the paperwork related to your note. 
  2. Make sure you can provide proof of your borrower’s payment history.  If your borrower has perfect payment history, your note is worth more and vice versa. 
  3. Consider selling only a portion of your note rather than the full amount.  This can be confusing at times but imagine your borrower has 200 payments left on the note.  It’s actually possible for you to get cash and only have to give up 100 payments in the future.  This is called a partial sale rather than a full sale.  
  4. Your note will sell for a greater percentage value if it’s for 10 years only as compared to 20 years.  Shorter term loans sell for a greater percentage.  
  5. Make sure the note documents have very clear terms. 
  6. Your note will usually be worth more if the interest rate is higher than the prevailing market interest rates at that time.  
  7. If you have access to your borrower’s credit report, provide a copy to us so we can see it.  Higher credit score borrowers will usually warrant a higher value for the note.  

 

 

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Mortgage Note

What Is A Balloon Payment?

September 27, 2021

What Is A Balloon Payment?

A balloon payment is a large payment due at the end of a balloon loan, such as a mortgage, a commercial loan, or another type of amortized loan. It is a lump sum paid at the end of a loan’s term that is significantly larger than all of the payments made before it. Balloon payments allow borrowers to reduce that fixed payment amount in exchange for making a larger payment at the end of the loan’s term. On installment loans without a balloon option, a series of fixed payments are made to pay down the loan’s balance. In general, these loans are good for borrowers who have excellent credit and a substantial income.

Understanding Balloon Payments

The term “balloon” indicates that the final payment is significantly large. Balloon payments tend to be at least twice the amount of the loan’s previous payments.

In a “balloon payment mortgage,” the borrower pays a set interest rate for a certain number of years. Then, the loan resets and the balloon payment rolls into a new or continuing amortized mortgage at the prevailing market rates at the end of that term.

Takeaways

  • Lower monthly payments than traditional loans
  • Higher risk due to lump sum payment
  • Usually restricted to most creditworthy and income stable borrowers
  • Usually, a balloon payment is not used in a typical 30-year home mortgage.
  • A balloon payment can be a big problem in a falling housing market when owners might not be able to sell their homes for as much as they anticipated before the payment comes due.

‪Pros and Cons of Balloon Payment Loans

Balloon payment loans are a complex financial product and should only be used by qualified income-stable borrowers. For example, this type of loan would be a good choice for the investor who wishes to minimize short term loan costs to free up capital. For businesses, balloon loans can be used by companies who have immediate financing needs and predictable future income.

Balloon payments can be a big problem in a falling housing market. As house prices decline, the odds of homeowners having positive equity in their homes also drop and they might not be able to sell their homes for as much as they anticipated.

In addition, if house values drop, a borrower will have a very difficult time having enough equity in their home to refinance to pay off a balloon payment.  As such, it’s very important to consider housing market cycles before agreeing to a balloon payment.  One definitely needs to consider what the future may entail before agreeing to a balloon payment.  

In the event, the balloon payment cannot be paid off, borrowers often have no choice but to default on their loans and enter foreclosure, regardless of their household incomes.  

Pros:

  • Low or no initial payments
  • Enables borrowers to access affordable short-term capital
  • Can help cover financing gaps

Cons:

  • Costs of loan can be higher in the long term, especially if the loan is interest-only
  • Poses more risk than traditional loans due to payment schedule
  • There’s no guarantee that you’ll be granted a refinance to switch the debt obligation

The Truth in Lending Act Regulations require that banks thoroughly investigate a borrower’s ability to repay before granting any mortgage. Some lenders have historically worked around this with balloon mortgages because most consumers have limited ability to make major balloon payments. Some lenders, therefore, didn’t include these large payments in their evaluations, instead basing a buyer’s ability to repay on just the preceding payments.

The Regulation sets forth specific criteria that lenders must meet before they can disregard balloon payments from their analysis.

 

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Mortgage Loan Mortgage Note

Mortgage VS. Mortgage Note | What Is The Difference?

September 24, 2021

Mortgage Vs. Mortgage Note | What is The Difference?

A mortgage is a type of loan you can use to buy or refinance a home. Mortgages are also referred to as “mortgage loans.” Mortgages are a way to buy a home without having all the cash upfront. The mortgage note, on the other hand, is exactly what it sounds like — the borrower’s written, signed promise to repay the loan.

The Mortgage

A mortgage, or mortgage loan, is a loan that allows a borrower to finance a home. You may also hear about a mortgage called a home loan. These terms all mean the same thing. A mortgage is a loan secured by property that is used as collateral, which the lender can seize if the borrower defaults on the loan.

The Mortgage Note

Mortgage notes, also known as promissory notes, are written agreements in which one party promises to pay another party a certain amount of money at a later date in time. Banks and borrowers typically agree to these notes during the mortgage process. When a borrower takes out a loan, promissory notes legally bind them to repay it.

Its Difference

The main difference between a mortgage note and a mortgage is that a mortgage note is the written agreement containing the details of the mortgage loan, whereas a mortgage is a loan that is secured by real property. A mortgage note is often referred to as a promissory note and is the document generated and signed at closing.

Homebuyers usually think of the mortgage or deed of trust as the contract they’re signing with the lender to borrow money to buy a house. But the promissory note, also known as the mortgage note, is the document that contains the promise to repay the amount borrowed. The purpose of the mortgage or deed of trust is to provide security for the loan that’s evidenced by a promissory note.

 

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Buy & Sell Mortgage Note Right Buyer for Mortgage Note Tips on How To Choose The Right Buyer

The Right Buyer For Your Mortgage Note

September 24, 2021
Right Buyer

The Right Buyer for Your Mortgage Note

Before selling your mortgage note, it’s important to research several note buying companies to find the right buyer. Visit their website. If they don’t have a website, chances are they aren’t reputable. Also, many offer free consultations so you can call and ask about the company and the note buying process. Only choose a company that is and has been in business for over 5 years.

For many property owners, finding the right company to buy your mortgage notes can be a nerve-wracking experience. In most cases, you don’t get to meet your note buyer one-on-one. Note buyers live in distant cities, so you’ll only communicate via phone or email. So how can you find an experienced and reliable note buyer who will give you the best return on your investment?

What Are Mortgage Note Buyers?

Mortgage note buyers include people and institutions within the secondary mortgage note market. These purchasers provide the owner of a mortgage note with a way to receive a lump sum of cash upfront rather than a stream of payments from a borrower.

When a mortgage note is set up, the initial lender is the owner of the note, and the person agreeing to the loan is the borrower. Once a note owner decides to sell to a note buyer, the buyer becomes the new owner.

There are numerous companies that focus solely on purchasing mortgage notes from lenders. When someone sells a mortgage note, the payments from the borrower do not increase or decrease in price, but they are sent to the new note owner.

Tips On Finding the Right Buyer for Your Mortgage Note 

Experience

A mortgage note buyer that has more than a few years of experience purchasing mortgage notes will likely be more knowledgeable about the process and pricing than newer companies.

Accreditations

Find out if the mortgage note buyer has an A rating (at the very least), and no unresolved complaints. While it is not legally required, many leading note buying companies are accredited by the Better Business Bureau. If the company is accredited with a strong rating and no complaints, you can feel confident that it is a strong business.

Although not all mortgage buying companies have accreditations, these can be helpful in identifying whether or not they have the necessary expertise in purchasing mortgage notes.

Trustworthiness

Follow your gut feeling. Does the company seem trustworthy? Has it completely answered all of your questions? Does it seem to be looking out for your best interest? If you have answered yes to all of these questions, chances are you have found a dependable note buyer. If you don’t feel comfortable with the note buyer, then move on to another.

A trustworthy mortgage note buying company will provide you with a quote without asking you to sign something beforehand. If a company asks you to sign something beforehand, it should act as a red flag that they may not be trustworthy.

 

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Mortgage Note

What You Need To Know About Mortgage Notes

September 10, 2021
Mortgage Note

What You Need to Know About Mortgage Note

A mortgage note is a legal document that details the loan terms and other significant information of a property purchase. The note constitutes who the buyer and lender is with underlying terms such as when payments are due and the agreed plan for repaying the borrowed money to purchase a property.

Lender Security

Deals between a lender and borrower always require a legal binding document as a protection for the lender before funding a property purchase. Mortgage notes serve as a security for the lender, thus, keeping the borrower legally bound to pay the loan. Once both parties have signed the note, the lender reserves the right to take legal action in case the borrower fails to make a payment on time, or defaults on the mortgage.

The mortgage note specifies the payment plan, the amount borrowed, interest rate, and lender action if the payment stops. Until the loan is paid in full, the note provides the lender control of the property.

Classification of Mortgage Note from Common Loan Types

Different types of loans clearly do not have the same stipulated terms as the mortgage note also differ. There are a few types of loans that are commonly used by mortgage lenders according to the borrower’s needs. The loan types below are the most common which affect the terms of the mortgage note accordingly.

Private Loan

When the lender is also the owner of the property, he can create the terms and stipulations of the mortgage note. This type of home loan has minimal regulation often subject to terms as per the desire of the lender.

Secured Loan

Secured loans make use of physical assets such as a property or a vehicle to serve as a form of collateral. An optimal deal benefits both the lender and the borrower. These types of loans can have lower interest rates due to lesser financial risk taken by the lender. Unsecured loans on the other hand do not require a collateral for approval but are solely based on the borrower’s financial history. 

Institutional Loan

Traditional mortgages done in banks or financial institutions have more regulations compared to other types of loans. It requires strict adherence to standard payment terms and interest rates that must be documented in the respective mortgage note.

Let Me Help You Out

If you happen to have a mortgage note and you are curious what your note is worth; Or you are just looking to sell your mortgage note and you are unsure how to start selling; Or maybe you’re finally tired of being nervous about your borrower’s ability to pay; Or who knows, maybe they’re not paying and you just want out!

If any of those scenarios are true, consider yourself lucky because you’ve definitely come to the right website.

Mikk Sachar is a Private Note Investor and is ready to make you a cash offer no matter if your borrower is current or behind. He will make you a cash offer for your mortgage note fast. All we need is some simple information and about 48-72 hours to do some research and we’ll be ready to make you an offer.

 

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