Being Prepared When Structuring A Private Residential Mortgage Note For Re Sale

Being Prepared When Structuring A Private Residential Mortgage Note For
Re Sale

Being prepared when structuring a​ private residential mortgage note for re-sale.
I have come across many note sellers that ignore the​ advice of​ being prepared .​
Properly structuring a​ note for resale can be the​ difference between selling the​ note fast and with little friction as​ opposed to​ selling yourself short or​ worse,​ not selling the​ note at​ all .​
In order to​ properly structure a​ mortgage note for resale is​ as​ follows:
1) Get the​ biggest down payment possible .​
25% is​ the​ Note Buyer's ideal amount in​ a​ perfect world although,​ you​ can definitely get away with 15% - 20% if​ need be .​
Anything under 15% equity becomes very risky for a​ Note Investor .​
In the​ case of​ a​ down payment under 14% equity,​ you​ will have a​ very tough time getting a​ high bid on​ that note .​
Anything under 10% down,​ will unlikely sell at​ all.
2) Make sure you​ (the seller),​ pull credit on​ the​ potential borrower .​
600 FICO score - 700 FICO score would be ideal .​
Remember; the​ worse the​ credit score is,​ the​ bigger the​ down payment you​ should require! Make sure you​ keep a​ copy of​ the​ credit report so you​ may present to​ the​ mortgage note investor underwriting the​ transaction .​
As far as​ credit scores,​ 650 or​ higher is​ considered great to​ excellent credit .​
610-649 is​ good,​ 609-590 is​ fair 589-500 is​ poor and below 500 - don't even bother .​
Also try to​ gather D.T.I .​
or​ Debt to​ Income information from the​ borrower as​ well .​
How much money she/he has coming in​ per month verses what dollar amount is​ going out per month .​
a​ standard credit report will show you​ what the​ borrowers monthly bills are .​
All you​ need to​ do after that is​ get an​ accurate dollar amount of​ what the​ borrower truly makes after taxes .​
This way there will be no surprises for you​ or​ the​ Note Investor and this will insure you​ the​ highest bids out there! 45% is​ the​ max D.T.I .​
ratio you​ should allow .​
This means,​ if​ the​ borrower's income is​ $5,​000.00 per month,​ 45% DTI ratio would be $2,​250.00 (5,​000 x 0.45 = 2,​250.00) in​ debt per month .​
The borrower only owes 45% of​ what they make to​ monthly debt.
3) It helps tremendously if​ the​ seller orders and completes an​ appraisal before submitting the​ note to​ a​ Note Buyer .​
The reason being,​ presenting an​ exact legal appraisal to​ a​ Note Investor allows for a​ more accurate bid,​ thus a​ hassle free transaction .​
This way when the​ note is​ underwritten,​ there will be no surprises on​ the​ collateral property whatsoever .​
This step is​ not necessary although,​ by doing this your are drastically increasing your chances of​ a​ very smooth note sale.
4) Include a​ high interest rate with the​ shortest term possible .​
Meaning,​ be sure that your borrower can afford the​ payments at​ the​ shortest term she/he can legitimately agree to.
5) Try to​ keep the​ loan under a​ 10-15 year payback date .​
Anything over 12 years usually takes a​ much steeper discount then say a​ 10 balloon .​
The Note Investor generally likes to​ be out of​ an​ investment in​ 5-10 years .​
Ideally,​ if​ your borrower situation permits,​ 5-10 is​ the​ first choice.
6) Include a​ prepayment penalty based on​ your states regulations and laws.
Please keep in​ mind; the​ above information is​ just a​ guide .​
If you​ have any legal questions about mortgage origination laws in​ your state,​ please consult a​ licensed mortgage broker/banker (in your state) or​ an​ attorney .​
Always be prepared!
Knowing this info before hand is​ the​ difference between a​ smooth transaction and a​ complete nightmare! Good Luck!

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