
Mortgage Buyers
As a mortgage note buyer, purchasing private owner financed mortgage notes I continue to be surprised at not only the note terms of many privately created notes but the pretty lax way they were permitted to be created. And while I do understand how a anxious home (or commercial property) seller could readily fall into the ‘I’ll do anything to sell my home’ trap, many of these tips will not effect the purchase but will still help protect your newly created financial instrument – the private mortgage note.
Below are some simple steps you should want to want to consider when owner financing to 1) Create a more valuable and marketable private mortgage, should you ever need to sell the mortgage and 2) Better protect yourself against future losses and/or irritations.
1. Require at least a ten percent down payment, even if it has to be in 2 or three installments. A home buyer with no “skin in the game”, as seen by the default rate on 100% traditional mortgages is a much more serious risk than one with significant money on the line.
2. Pull credit on the borrower. If you aren’t able to pull credit yourself, ask the borrower to provide you with a recent credit report from all 3 bureaus with scores. Keep a copy of the report, particularly if you plan on selling the note in the near future. Even if you don’t turn a homebuyer down because of poor credit because you really have to sell, you can often use the poor credit to get a higher interest rate. And don’t forget, there may be perfectly legitimate reasons for the problems with their credit such as a job loss or illness. Did you know that medical expenses are the number one driver of Bankruptcies in this country? Even people with good jobs can be wiped out if they have no insurance. I’ve run into many people with health insurance take a major hit in credit scores due to their insurance company dragging out payments.
3. Use a good lawyer or title company to close the deal and be sure the note allows you to pull credit as well as sell the mortgage note in the future. Someone approached me recently to sell a note, only to discover the note had a “non transfer” clause. You have control over this process. Be sure it goes in your favor.
By following these steps when offering owner financing on a home or commercial property sale, you dramatically reduce your chances of a financial loss in the future.
Ron Stone is a financial specialist. His businesses include a private note buying business as well as a no doc jumbo loan business. Check out his websites at Mortgage Buyers and Note Buyers