When a client has a promissory note, trust deed, private loan note (secured by real estate), or other mortgage note what do the mortgage buyers at Equity Funding LLC look for?
The following is a brief overview of note buying and what a note buyer will be looking for.
A Real Estate Note is most saleable when the following items are addressed in the note:
- 1st position is more marketable than 2nd position, 3rd position is almost impossible.
- The face interest rate should be FNMA interest rate + 2% to 3% or more.
- Single family owner occupied residential is the best collateral, then multi-family,
then owner occupied commercial or industrial, then land and other type properties.
- Try to have the promissory note, deed of trust, or mortgage note fully amortized over 10 to 15 years but a 30 year amortization with a 5 or 10 year balloon is also marketable. Typically, mortgage note buyers don't like large balloons coming due as they feel the payor runs a good possibility of going into default because they can't get this note refinanced although this risk is minimized with real estate.
- Have the buyer sign the mortgage note, promissory note, trust deed or other real estate note with a personal guarantee and have the spouse sign the note too.
- Have the buyers credit report ready to show a potential loan buyout professional.
- For a private loan buyout, If a credit report is not available to a mortgage note buyer or portfolio buyer that’s OK for now. We can do a mortgage note evaluation and assume average credit.
- With private loan buying it is critical to be able to show payment history. These days third party verification (bank deposits, cancelled checks etc) is usually required by any national mortgage note buyer.
- Loan buyout companies will need proof of the cash down payment to purchase the property; closing statement etc. Loan buyout professionals that buy private notes for cash are uncomfortable with low or no down purchases. Note Buyers like to see 10% to 20% or more equity in the property. Real estate notes with low credit scoring and thin or no equity have practically no chance of being bought.
- Mortgage notes are more attractive to a note buyer when there is 6-12 months of verifiable pay history, or “seasoning”. Less than this can be offset by good credit or equity in the property.
- When requesting a mortgage note evaluation, it is helpful to have the payors name, address, and social security number (if available) so credit scoring can be verified if need be.
- When we buy mortgage notes credit scoring for the buyer/payor should be above 620 for real estate secured notes and 670+/- to 700+ for business notes.
We hope this has answered some of your private loan buying questions. Further information can be found in our Note holder’s manual which includes Mortgage Note Terminology and many helpful hints.
