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.
