I know there are a lot of people out there thinking about seller-financing their home and possibly selling the mortgage note that is created as a result of the sale. For this reason, we at Amerinote Xchange would like to put forth some quick tips to keep in mind when creating a mortgage note for resale.
1. Get AT LEAST 10% as a down payment (more is better). The more money you collect as a down payment, the better the chance you have at receiving a much higher offer for your note. Plain and simple.
2. Sell your home to someone who is planning on living in the house. Owner occupied notes produce higher offers, which means more money in your pocket.
3. Charge higher interest rates than banks and traditional lenders. If a buyer/borrower wants 4.75% rate on a 30 year mortgage note, with all due respect they need to go to a traditional bank. As a private lender, you do not have the same risk tolerance as a multi-billion dollar bank like B of A or Wells Fargo. The rate you charge on a seller financed mortgage note should be between 8% to as high as 11% depending on the down payment, and pay-back period.
4. Make sure the buyer/borrower adds you (the private lender) as the loss payee on the home owners insurance. If the place burns down, you need to be protected of course.
5. Be sure to get title insurance on the deal prior to closing/funding. It is always wise to use a 3rd party title company to handle the closing so everything is on the up and up and you are protected!
6. Try to stay away from 2nds. If you are holding a 2nd mortgage on a seller financed transaction, plan on keeping it. 2nd mortgage notes very rarely sell at all and if they do, we are talking $0.10 to $0.25 on the dollar at best.