Toll-free 1-855-456-NOTE (6683)
facebook twitter
Seller Buyer Broker

 

Blog

How To Create A Valuable Private Mortgage Note?
06/2-13 at 19.48 by: Bhavna Jhaveri

When the buyer is unable to secure conventional financial and the seller is willing to carry back a portion of the sales price of a property, a private mortgage note is created. Below are the basics of creating a secure and saleable seller financed mortgages and notes:

 

  • Sell the property to a buyer who will owner occupy the premises.
  • The buyer's lowest credit score should be greater than or equal to 580.
  • The property should not be sold to a relative or an acquaintance.
  • Sell the property utilizing an escrow or title company as a third party processor
  • It is very important to get a legitimate title policy and insurance that is equal in value to the sales price.
  • The mortgage (1st lien position) should not be more than 85% of the sales price.
  • This mortgage should be secured by a Mortgage Deed or Trust Deed on the property.
  • Ideally, the down payment should be greater than or equal to 15% of the sales price.
  • In the event that the buyer does not have cash to put down more than 10% and the property value is higher than expected, you have the option to carry back two notes: The first position note at 80% of the sales price and the 2nd position note at no greater than 10% of the sales price. This is referred to as a 80-10-10 arrangement (1st position note: 80%, 2nd position note: 10% and Cash: 10%.
  • The terms of the note should be clearly stated. A good note should contain the following:
    • The date when the transaction was executed
    • Full names and addresses of the buyer(s) and the seller(s)
    • Full address of the property in question
    • The first payment date of the mortgage note
    • The maturity date of the mortgage note
    • The term of the note. Typically, a note is amortized over a period of 30 years even if the actual term is less than that.
    • The interest rate applied to the note. Usually, the interest rate for seller financed notes is between 8-12%
    • Pre-payment penalty for the first five years
    • Monthly Principal and Interest payment on the note
    • Considerable and detailed provisions for late and default payments on the note
    • The total down payment paid by the buyer
    • The note should always be notarized and both the buyer and the seller should have an original copy
  • A detailed record of the note and each payment has to be kept. That could be done by saving a copy of the payment check showing the bank cancellation stamp and/or by having a separate bank account for the note.

 

Bhavna Jhaveri is a notes investor and has multiple years of experience in the real estate industry. Our private mortgage note buyers are always willing to give tips/advise on creating or selling a note.

©2013 NoteCountry.

Publishing Rights: You may republish this article in your ebook, web site, or newsletter, on the condition that you agree to leave the article, author's signature, and all links completely intact.


No comments registered
contactus

Easy ways to get
the answers you need.

phone855-456-NOTE
call us855-456-6683