Private mortgage note buyers look at five primary elements when evaluating whether to buy a note. They are.
- The creditworthiness of the mortgagor or homebuyer. Many note buyers want to see a middle (of 3 bureaus) credit score of at least 620 but higher is better. Be sure you pull all 3 bureaus even if you think they have great credit and keep a copy for the future.
- The amount of equity the home (or commercial property for that matter) owner has in the property. In other words the down payment. Also, just because the appraisal was for more than the purchase price doesn't mean a lot to them.
- How many timely payments the mortgagor has made. The more payments made, the more valuable the note. You want to be sure you keep very detailed payment records, including a log and copies of cancelled payment checks. Do not allow the buyer to pay cash. If they are insistent, make them get money orders at the post office.
- The interest rate of the note. Remember, you are financing for someone who either chooses not to or can't get traditional financing so charge a premium over market rates.
- The length of the term of the note, as most note buyers are buying cash flow.
So there you have. If you are considering creating a note through owner financing, you want to do as much of the following as you can to sell private mortgage for the most money. These include, a) Get as large a down payment as possible, b) Hold out for as good a credit buyer as you can, c) Set as high an interest rate as possible and d) Set a payment term of between 10 to 20 years, with no real short balloon payment. If I was trying to sell my note, I would work as hard as I can on these items to maximize my asset. (Ron Stone)