Education

Note Information

Everything you need to know about owner financed mortgages, creating quality notes, and the US mortgage market.

Market Overview

The US Mortgage Market

2009 was a monumental year for the United States mortgage market. Since then tens of billions of dollars have been lost in mortgage investments, and the effects are still being felt.

Without notice mortgage originators stopped creating sub-prime loans and this large group of buyers/borrowers is now left with nowhere to secure financing. Today, there is a staggering number of potential real estate buyers who can only look to the property seller for the financing they need.

Important

While financing the buyer may seem like a good idea, we recommend you learn some fundamental elements of the business before becoming a mortgage lender.

The demand for owner financing has increased significantly and will continue to climb. It has been estimated that approximately 10% to 15% of property sold is now sold with seller financing.

Guidelines

Owner Financed Mortgages

Knowing how to successfully use owner financing is extremely important.

Credit Report

Always require a potential buyer to provide a recent tri-merge credit report.

Down Payment

Require as large a down payment as possible. A good guideline is 20% of the purchase price.

Avoid Bad Combinations

Do not finance a buyer who has poor credit history and cannot make a substantial down payment.

Advantages for the Seller

More potential buyers

No price reduction needed

Faster closing

Tax liability may be deferred

Note can be sold for cash anytime

Advantages for the Buyer

No rigid bank qualifying

Lower closing costs

Smaller down payment possible

Flexible payment terms

No origination points or mortgage insurance

Best Practices

Creating A Quality Mortgage Note

We strongly suggest employing the services of a competent attorney to represent your interests.

The sale price should be nothing less than the property's fair market value. Don't allow the sale price to be negotiated below market value.

The larger the down payment, the more motivated the purchaser will be to protect their investment.

The rate should be higher than bank rates. Don't be afraid to require at least 2% higher than local banks are charging.

You have the right to verify income and credit history. If selling to someone with poor credit, insist on a larger down payment.

A term up to 15 years is practical. Scheduling a balloon payment shortens the term without increasing monthly payments.

Require the buyer to make monthly escrow payments for taxes and insurance to prevent undesirable situations.

Require the purchaser to provide a lender's policy of title insurance. You will need this if you ever decide to sell your note.

Have a competent attorney or title company represent you. Make sure your new mortgage or deed of trust is recorded immediately.

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