We have been purchasing notes, mortgages and real estate contracts for over a decade and we pride ourselves on a unique client experience at the best price possible.
Selling a mortgage note is a streamlined and straightforward process. A person or entity collecting loan payments has the ability to sell a mortgage note for a lump sum of cash today, instead of holding the loan long-term over many years. You can choose to sell all, or just a portion of your note, depending on your capital needs. We will take a deep dive into the sale process as well as fully explore all options and pricing factors below.
Here are the simple steps to selling a mortgage note
I want to sell my mortgage note but where do I start? The process is actually very simple for the note seller. Before you begin the note sale process, make sure you have all of the necessary information to receive a mortgage note quote. This will include the property address, the loan amount, the interest rate, the payback period and the creditworthiness of the homeowner. If you are not sure, or you are missing any information pertaining to the note for sale, please feel free to contact us and speak to a live person to answer your questions directly.
This entire process of selling a mortgage note will take anywhere from 15 days to 30 days depending on the state/property location, the availability of the local appraisers, the availability of the title companies providing the title search, etc. We pay for ALL costs associated with the purchase of your mortgage asset, including appraisal, BPO, and title fees.
Now you know the steps of selling your mortgage note, but you may still be left wondering how to sell my real estate note for cash and find the best buyer.
It’s enormously important to gauge different buyers’ offers for your note. After all, the value of a mortgage isn’t static; it can change from day to day alongside fluctuating national interest rates.
On top of that, you should ensure the mortgage note-buying company you work with has certain qualities that will make you feel at ease offloading your note.
There are many ways to determine if you are dealing with a “real” and professional mortgage note buyer who will treat you fairly and give you the best price for your note. Here are some things to keep in mind:
Professionalism: Does the buyer you contacted seem professional? Do they compose themselves in a professional manner? Would you trust this person’s ability to assist you in getting you the monies needed when selling your asset?
Direct Note Buyer vs. Note Broker: Is the company or person you are dealing with a direct note purchaser or a broker? Working with a broker is not a bad thing, as there are many who are worth their weight in gold. That being said, working with a direct buyer means you will probably save money on the broker fee that could range between $2,500 and $10,000, depending on the note in question. Working with a direct buyer will ensure that you get the best offer possible – always. Working with a good broker means you will have to do less work looking for a quote. Many sellers prefer working with a direct funding source like the team set up here at Amerinote Xchange.
Accreditation: Does the company you are working with have a Better Business Bureau Accreditation? Amerinote Xchange has an A+ rating with the BBB. If they do not have one, move on.
Gut Feeling: Go with your gut. Do you feel the company is on the up-and-up? Does it sound like they know what they are talking about? If your gut tells you otherwise, hightail it out of there.
From our extensive experience and in-depth understanding of the secondary market, it is a fact that the difference between getting a note deal funded and exceeding one’s financial and client-service expectations, all boil down to the particular funding source you use. Obviously, money is the first deciding factor when choosing a mortgage note buyer, but if the service you receive lacks effectiveness and efficiency, what’s the point of having your time wasted?
Depending on if you are buying performing mortgage notes or non-performing mortgage notes will decide what a mortgage note buyer will consider when buying a real estate note for their portfolio.
On performing notes, most mortgage note buyers are interested in three major items:
On non-performing notes, most buyers look for:
This is something that all well-informed noteholders should know when selling a mortgage note. It all comes down to one major thing for a note buyer – RISK! This is something that a seller should keep in mind when they decide to sell mortgage loans. Risk of non-payment, risk of borrower default, risk, risk, risk. No matter who you decided to sell mortgage notes, any and all (smart) mortgage note buyers will first look to the asset’s down payment or equity in the real estate.
The equity in the collateral determines how sound that loan would be as an investment. The equity determines the loan’s security level. The higher the risk, the less the loan is worth to a note buyer. A good rule of thumb is: the less money one collects as a down payment, the less money the note is worth to a note buyer on the secondary market. The reason being a high loan-to-value (or LTV).
Just to clarify, a poor down payment is 0% to 9%, a decent down payment is 10% to 14%, a good down payment is 15% to 20%, a great down payment is 21%-30% and an excellent down payment is 31% or more.
The very next factor all note buyers look at is the borrower’s credit score (Equifax Score, Trans-Union Score, and Experian Score, also called a Tri-Merger).
Meanwhile, a poor credit score is 600 or lower, a decent score is 601 to 675, a good score is 676 to 720, a great score is 720 to 780 and an excellent score is 780 or higher.
Most note buyers will only go down to a 600 credit score whereas we will go as low as a 500 FICO Middle-Score. After the credit factor, the rest of the note’s calculation will really vary between the buyers.
Here at AX, our note purchase criteria will also included but not be limited to: the loan’s seasoning (payments received, payments owed), property location/ RE market trends, loan payment records, relationship between borrower and seller, loan’s performance, etc. To begin the note buying process online, click here for a free quote.
If you have not yet sold your property, and are you or your client are thinking about owner-financing the sale, you can maximize your cash payout once you create the mortgage note and sell it to a mortgage buyer.
This mortgage note buying process is very simple. As a future mortgage note holder, you can finance the property sale privately, without discounting the sales price (do not overprice) by creating a seller-financed promissory note. You can then sell the note to AX, via the secondary mortgage market, to achieve a painless exit strategy so you can move on with your financial goals.
It only takes a little research and some patience which will put you in a position to receive top dollar for your debt instrument when you sell your mortgage note. Keep in mind though, there are a number of moving parts to this type of transaction that must all be confirmed and maintained in order to ensure a smooth and favorable funding conclusion when selling your mortgage note.
AX has included a couple of major mortgage buying guidelines to follow, as well as some insight to the overall note investing sector (and its pitfalls).
Many future note sellers should know what characteristics it takes to establish value when selling real estate notes to any/all mortgage note buyers, private or institutional. Knowing these loan characteristics would ensure that the note seller will be in best position to receive the most money possible for their privately held note (commercial mortgage note or residential mortgage note), when they go to sell the asset to a mortgage note investor.
The big question is: How do you know that your mortgage note will sell after you create it?
This is a question that we at AX hear quite a bit as it pertains to curious, diligent, and well-informed sellers as well as savvy note brokers. Below is some information on successfully creating a valuable mortgage note for resale to an investor.
When creating a privately held mortgage note, there are several things to keep in mind as a future seller. The very first piece of information any well-informed mortgage note investor will look at when reviewing a privately held real estate loan for purchase, is the down payment (or equity in the property/collateral).How much money did the borrower of the loan put down at the loan’s origination?This item will determine how secure the subject loan for sale would be as an investment. If the borrower only has 9.75% or less to put down, this will not allow you to maximize your note’s worth on the secondary market. The offers you would receive would be mediocre, at best. A decent down payment is 10% to 15%, a good down payment is 15% to 20%, a great down payment is 21% to 30% and an excellent down payment is 31% or more. A good rule of thumb is: The more money you collect from the borrower when you create the loan, the more money the loan is worth to a mortgage buyer when it is sold on the secondary note market. If the borrower has less than 10% to 15% down, the note would still sell (at least through us), although, the asset would succumb to a steeper discount (which varies depending on the total loan characteristics).
The higher the down payment, the higher the offers when it’s sold – plain and simple. The closer the property seller stays to 31% down or more, the more money you will receive when you go to sell the note.
For any investor, the very next factor considered is the borrower’s credit scores (Equifax Score, Trans-Union Score and Experian Score or also called a Tri-Merger). Most note buyers use the middle-score of the borrower. So if the borrower’s credit scores are: 656, 634, 550 the note buyer will use the 634 score to price the note. Just to clarify, a poor credit score is 600 or lower, a decent/average score is 601 to 675, a good score is 676 to 720, a great score is 720 to 780 and an excellent score is 780 or higher. Most mortgage note buyers will only go down to a 600 credit score whereas we at AX will go as low as a 525 FICO Middle-Score. We are not suggesting that you try to get a borrower with a 525 credit middle score and call it a day. A smart note seller will be patient when searching for a borrower and try to find someone who has a credit score of at least 625 or higher. In order to maximize the note’s value when it is sold, it would be wise to obtain a borrower with a credit score over 720 FICO middle score. Now, you would probably ask why would a borrower with a credit score of 720 or higher opt in for owner-financing, instead of going directly to a bank. The answer is simple. Traditional banks do not only look at the borrower’s credit score when reviewing a mortgage loan for origination. The are other factors such as debt-to-income ratio (aka DTI), loan-to-value (aka LTV), etc. In order to secure a traditional bank loan from the big chain banks such as Wells Fargo, Chase, etc (or even small community banks), one would need a 29% to 31% DTI with at least a 70% LTV on residential loans and a 60% LTV on commercial loans.
Very few borrowers hit all the marks on the banks’ underwriting checklist, which is why you see in the media nowadays that even the most creditworthy borrowers are being shot down for financing by most banks. So, the suggestion here is, the higher the borrower credit score, the more your mortgage note is worth to an investor. Also, remember to verify the borrower’s credit score when you originate the loan via an attorney or real estate agent. Do not just go on the word of the borrower. A little diligence can go a long way.
When creating a seller carry-back mortgage loan with the intention of selling the loan to a mortgage note investor, one must keep several things in mind when deciding the loan’s terms and structure at the time of sale:
A personal guarantee is included with a loan when the borrower is a corporate entity (LLC, etc) and not a private individual. If a real estate seller sells their property to a corporate entity and does not ask the borrower to agree to a personal guarantee, this could negatively affect the loan’s value on the secondary market by thousands, if not tens of thousands of dollars. It is that important! In the case of a loan default by a corporate borrower, the borrower can avoid repayment by dissolving the articles of organization or incorporation, depending on the entity’s business structure. Once the company is dissolved, in the eyes of the law, no one can legally be held accountable, thus the holder/seller is out their money.
There is absolutely no recourse. You would still get the property back in foreclosure, but that process would be dragged out for many months, if not many years in some states. It is a complete nightmare! A simple way to avoid this costly mistake when selling real estate notes to a corporate borrower, is to require and include a written personal guarantee by the borrower.
This is an item that is grossly over-looked by most sellers when creating a note for resale. A small part of the asset’s value comes from the cleanliness of the seller’s record-keeping abilities. It is of the utmost importance that the seller either keep and/or file cancelled checks (hard copies or electronically) or have access to bank statements proving that the payments we collected in a timely fashion.During the underwriting process of a real estate note transaction, any well-informed note buyer will request that the seller provides either cancelled checks, deposit slips (with bank stamp in it), or bank statements showing that the payments were made on time. If the borrower pays you in money orders for whatever reason (i.e. the borrower does not have a bank account, etc), it would be suggested to make copies of the money orders before cashing them.If the money orders are being deposited into bank account, it is not 100% necessary to make copies because the bank statements will show the deposits on file. Nevertheless, making copies is just an added security measure to ensure that the note seller’s record-keeping status is in order, which will in fact increase the value of the note. This also goes for down payment checks and record-keeping as well.
As every note buyer is different, most mortgage note buyers do like to see at least 1 to 6 months of seasoning before placing a bid on a mortgage loan for sale. This particular item does vary between note buyers. For the most part, many mortgage note buyers will most likely decline on a note that has not been seasoned at all (simultaneous closing, etc.). The seller may need to collect at least 3 payments before submitting the note for purchase. This way, there is some sort of visual indication of positive performance pertaining to the loan. We at AX will buy a residential mortgage asset as long as there was one payment collected on time. As far as commercial notes, AX requires that there be 3-6 timely payments collected depending on the down payment. The larger the down payment, the fewer payments we require to be collected by the seller prior to sale. We at AX have been involved in instances that allowed this item to be waived, due to a large down payment submitted by the borrower at origination (40% down or more). Out of all of the above listed items, loan seasoning is truly a matter of a note buyer’s investment preference. It is mandatory with us at AX to have a mortgage loan seasoned by at least 1-3 payments before we can buy it (depending on the down payment/equity).
When it comes to structuring a mortgage note for resale, corners should never be cut. If they are, a seller should expect friction, delays, disappointment, and of course the possibility of getting stuck with the note. Properly informing yourself (or your seller) on structuring a mortgage note for resale will be the difference between selling the note or not.
If you have sold your residential or commercial property and you or your client owner-financed the mortgage and you’re wondering how to sell mortgage notes, AX can offer a sound and painless exit strategy if you’re tired of acting as the bank.
If you have an existing promissory mortgage note that you want to sell now, simply contact us to get started today.
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