Tips For Creating Marketable Owner Financed Notes When Selling Your Home

Published: 04th September 2009
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Can you explain how to best structure a private mortgage note if I ever want to sell my note for more money? This is something I hear all the time. And while there is no one way to structure a private owner financed note, below are some suggestions that may help.

For those homeowners as well as commercial property owners desperately needing to sell their property, offering owner financing can be a terrific instrument to get a property sold quick and for top dollar. However, many property sellers don't do enough front-end work in writing a mortgage note. The result is a private mortgage that won't command a good price if it ever needs to be sold to a private note buyer.

When creating a mortgage note in order to sell your property don't just slap together a private note in order to get the borrower's agreement and sell your property. Home sellers that do this often end up with a private note that they would either have trouble selling or would have to discount heavily in order to sell. Purchasers who would like owner financing really can't be too choosy as not every home seller has the option of offering owner financing. Bear this fact in mind as you the seller have the upper hand in your negotiations. One way to avoid the mistake of structuring a private mortgage note that is one-sided in favor of the buyer is to have plenty of prospective buyers to pick from. Begin by advertising the fact that private financing is an option but be sure and include in your ads that a certain minimum down payment is mandatory. I would suggest at least 10% or even more. This will minimize having to deal with home buyers looking for a miracle 95% or 100% financing. Also, if you plan to sell the mortgage note you may want to choose a buyer with more of a down payment over another buyer even if you have to sell your property for a somewhat lower price.

Next to consider in your private note is the rate of interest. Believe it or not I have seen a number of super low to zero interest rates on owner-financed notes. You read correctly, I said zero! I have also seen notes with no payment except the balloon. This type note is considered by note buyers as an unseasoned mortgage note. Prospective homebuyers as well as business property prospects know they will probably have to pay a premium over current market interest rates. I would suggest 2 to four percent in excess of market, depending on their credit and how much they put down.

That brings me to creditworthiness of the prospective purchaser. Always pull the buyer's credit or have the potential buyer provide a credit report that is less than thirty days old that has all three credit bureau's information. Use this information to your benefit in the negotiation process. The lower the borrower's credit scores, the higher the rate of interest and maybe down payment you should demand. And if their scores are less than the upper 500s, you may have to hold the private note for some time for it to season in order to get a superior price if you ever need to sell it.

Finally, you need to consider the term of the private note. Up until recently, 30-year notes were commanding top pricing from note investors. With all the fears of inflation on the horizon, many mortgage investors are looking for shorter time periods. If I were issuing a note that I planned on trying to sell, I would do a fifteen year amortization or a 30-year amortization joined with a balloon payment in ten to fifteen years. You can even sell a portion of the private note such as the payments up until the balloon payment or the payments and a portion of the balloon. Selling a portion of a note can fetch you a better deal (percentage wise) than selling the full mortgage note payments.

One additional suggestion is to use a skilled real estate lawyer to draw up the note and conduct the closing so you are protected. Also be sure the note is transferable should you need to sell it to an investor.


Ron Stone has a note buying business. His company buys mortgage notes and help home sellers offer owner financing to sell their home fast and for top dollar while selling the private mortgage note at a simultaneous closing. Learn more about note buying and selling at Sell Private Mortgage

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