If you’re not familiar with a ‘mortgage note’, it’s essentially a type of promissory document that details repayment of a loan issued to purchase real estate, whether a home, business or land.
This legal document will describe the detailed specifics of the loan terms, repayment, interest rate and duration to repay.
‘Mortgage notes’ can either be issued by a private lender, such as an individual or private entity – or a traditional bank.
In private mortgage scenarios, the borrower would make payments to a private person or entity directly rather than the banking institution. Private mortgage lenders can choose to continue to receive payments or sell their note for a lump sum.
Our team at American Equity Funding have assembled a few of the top benefits to selling mortgage notes.
Mortgage notes are easily liquidated assets. Owners of a private mortgage note are able to choose to keep receiving the monthly payments or sell the mortgage note(s) to purchasing companies as a way to obtain a lump sum of cash.
In these economic times, there are constant ups and downs, making it more difficult than ever for homebuyers and business owners to obtain mortgage loans. For this reason, owner financing has become a popular way to sell property. Many who have recently sold their residential or commercial property using seller financing are currently holding a deed of trust or mortgage note.
Owner-financed mortgage notes require you to act as a bank, collecting payments and keeping detailed records – it can be stressful work.
However, there are a numerous companies that purchase private mortgage notes. In fact, it’s a very active and competitive market.
Almost every mortgage note can be sold, even mortgage notes where the payments are not being made on on time.
Some common reasons that private lenders sell mortgage notes include:
-Obtaining capital for a new business venture
-Obtaining capital to buy or remodel an existing home
-Funding a family milestone, such as a college education or a wedding
-Funding unexpected medical expenses
-Funding a dream vacation of a lifetime
-Dividing an estate
-Dividing marital assets
-Moving funds to a different investment
-Removing the burden of note management
-Moving money to a safer investment
-Buying a new vehicle, motor home, boat, car, etc.
Firms such as American Equity Funding purchase mortgage notes for a lump sum of cash. You can also sell part of a mortgage note, for example 36 or 48 payments, which allows you to receive payment today, while continuing to collect mortgage payments from the buyer once payments to the partner institution have ended.
In order for a mortgage note to be sold, the value of the property must be established by completing a drive-by appraisal.
Additionally, a ‘title insurance’ policy must be purchased on the mortgage note. Title insurance is a policy that protects the real estate owner and lender against any property loss or damage that could affect the value of the title. Each title policy is subject to specific terms and conditions.
Finally, the outstanding balance must be verified with the borrower before a mortgage note can be purchased.
If you’re looking to make money in real estate or mortgage notes specifically, you’ll want to understand a little more about the difference in these investment types.
Real estate investments can be profitable and a high return on investment, however the market does require knowledge of real estate and a large amount of investment capital.
Alternatively, investing in mortgage notes has some advantages over real estate property for for a few reasons. First, there’s an immediate discount on purchasing even a single mortgage note, and if you buy them in bulk, the discount is even further. Second, managing a mortgage note is easier than managing a property.