How To Structure Your Mortgage Note For Resale To An Investor

How To Structure Your Mortgage Note For Resale To An Investor



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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