What Does A Note Buyer Look For?
When selling a mortgage, selling a note, selling a Trust Deed or selling a Land Contract, buyers look at specific details of the note.
- Note Origination Date
- Note Original Amount
- Sale Date
- Note Term
- Note Balance
- LTV
- How many payments are made and how many remain
- Interest Rate
- Location and details of the property
- Appraisal
- Credit
Now, let’s jump in and look at each one of these and identify why they are important to a buyer.
Note Origination Date
Loan Original date is important when you sell a mortgage because it tells the buyer how long the payor has been paying on the note. The longer the period of time the better the note. This is because the note becomes “seasoned”. Even if credit is not the best, the buyer will look at this as a good thing. The shorter period of time the payor has been in the note, the less desirable it becomes, therefore can cause more of a discount when you sell a mortgage depending on the other details of the note.
Note Original Amount
This is an important figure when you sell a mortgage because it will help identify the LTV (Loan To Value) of the mortgage. The higher the LTV the less desirable the note becomes. There will be more of a discount dependent on the rest of the details of the note. Typically a buyer likes to see a LTV less than 80%. This is due to the fact the payor has more of an interest in making those payments and keeping the property.
Sale Date
Again this is similar to Note Original Date. It shows the buyer when payments began in relationship to when the property was sold. When there is a gap between these two date, the question of why becomes relevant. This date also helps to calculate the balance of the loan, verifying the figures.
Note Term
The note term is also quit important. The longer the term, the more the discount will most likely be. Buyers like to see shorter periods of time because it will free up their funds to buy more notes. If the note has a 30 year term, which is a very long time to have funds tied up in a mortgage. Often you will see a partial purchase with these longer period notes.
Note Balance
The note balance in selling a mortgage note is important for calculating the LTV. The Note Balance divided by the Original sale price value results in the LTV. This is the figure discussed above under Note Original Amount.
LTV – Loan To Value
This figure when you sell a note is a calculation of how much equity is in the property. The lower the LTV is the better. Loan to value is calculated by taking the note balance and dividing by the original sale price or home appraisal.
How many payments are mad and how many remain
This is important when selling a note also, because it provides how much time the funds will be tied up in this note. As earlier stated, the longer the funds are tied up, the less investing a buyer will be able to do with that money. This also helps the buyer verify calculations on the note balance.
Interest Rate
Naturally this figure is important. The lower the interest rate, the higher the discount will be. But, at the same time, the higher the interest rate, the higher change that the credit of the payor will be bad. Otherwise, why note refinance and get that interest rate down s more of their payment is going towards pay down of principal. Generally 6 – 8 percent is what is seen in the market place as a good interest rate.
Location and details of the property
When selling a mortgage you would wonder why this is important. A buyer is buying the note not the property. However, that is not necessarily the case. If the loan defaults, they take the property back so they want to make sure it is something desirable to have for resale.
Appraisal
The appraisal and tax records of a property are important for verifying the value of the property. If the appraisal does not equal or exceed the Sale price, then that shows the property value is dropping or has dropped which could result in negative equity. Just like the property owner, this is not desirable and most of the time you will not get a buyers interest.
Credit
Owner financing is often used when an individual does not have good credit. However, it is also used to sell a property faster. It can also save the buyer some money in points and closing costs. The savings can be used as down payment on the property instead of giving it to a bank or broker.
In addition, a 630 – 650 or higher credit rating is a requirement of almost every buyer out there. If the credit is lower you will not be able to sell a mortgage note.
Summary
This information is not meant to discourage nor tell you there will be horrendous discounts if you try to sell a mortgage, it is strictly “brain food” to understand how and why a buyer thinks the way they do. They take all this information and put it together to come up with their offer. If you have combinations of the above things in the negative you can expect either no interest in the mortgage or higher discounts. If you have in the positive more of the details above, then there will most likely be less of a discount applied to the sale of a note.
It is always best to let the buyer decide. This is why a Free No Obligation Quote comes in handy. It lets you know where you stand and also helps you decide whether or not you would want to sell the note. Another question you may want to ask yourself, if a buyer does not want the note, why you hold the note. Also, if a buyer is going to apply a larger discount, you need to again ask yourself what are you doing holding the note.
On the other side, if you need or want the money, getting the most you can in selling a note is the way to go. Blue Ridge Funding works with 30 buyers that submit offers on notes. What better way to sell a mortgage. Often there are 2, 3, or 4 offers on a single note. If they are all coming in at the same range, then you know you are seeing the best offer that you will be seeing period. If there is a wide spread, then grab the highest offer.
Good luck and let us know if we can help.
Call today for a free no obligation quote at: 706.896.8044 or complete the sell my note submission form with the details we just discussed.