Mortgage Buyer Blog

Many note holders ask just what the biggest factor is for mortgage buyers in discounting a note. While there can be some extreme cases, the main factors in order of effect on the discount on a note are as follows.

• Very poor credit or pay history of the borrower. Oftentimes you may not even get a quote from mortgage buyers if this is too bad.
• A lengthy amortization period.  30 year (or longer, yes I’ve seen a 50 year amortization period) results in a significantly higher discount due to the time period. Think of note discounting as the reverse of compound interest. If you must amortize over 20 years to get the payment acceptable to your buyer, set a balloon date of five to seven years. The balloon date also incents your buyer to ‘get their house in order’ and refinance.
• Low interest rate. I have sellers all the time tell me that they have a great note when the interest rate is 5% since current conventional mortgage rates are in the 3 percent range. Unfortunately, those are apples and oranges as there was almost always no Underwriting by the seller. Think of owner financed notes as the “new sub-prime loans” for the post collapse of the mortgage and real estate markets.

There you have it, the most important factors for note discounting. If you have any questions about selling a mortgage note, don’t hesitate to call us at 1-877-655-5625. Ask for Ron.

In short, absolutely check credit when owner financing. Unfortunately, I don’t get this question enough and we run across some owner financed borrowers with very poor credit. This could easily make the note unsellable or at the least make the value much less. Even if your buyer doesn’t have great credit, at least you’ll know what you will be up against when considering selling to mortgage buyers. It also could help you in interest rate negotiations. On top of poor credit (known or unknown), many property sellers give their buyer a good interest rate. Even 6% is not much of an incentive for your buyer to improve their credit unless you have a balloon. So check credit of your buyers when owner financing or have them provide you with a recent (less than 30 days old) credit report. You may still sell them your property but it may significantly effect the terms of your note. Good luck. Call us if we can help at 1-877-655-5625. Ask for Ron.

The commercial sale leaseback programs offered by U.S. Funding Solutions in partnership with Commercial Business Lenders has been expanded with the addition of a Real Estate Investment Company in the southeastern US. The new programs encompass larger properties such as Retail Centers (with anchors in place), Medical office buildings, office and industrial complexes. Demographics needed are 50,000 people in a 3 mile radius. With the addition of this new Real Estate Investment Company’s programs, U.S. Funding Solutions and Commercial Business Lenders has a much broader selection of commercial sale leaseback programs. Sale leaseback programs are a great way for small to mid size businesses to access capital without all the issues associated with traditional commercial real estate loans from a bank. To learn more about these great commercial sale leaseback programs, call 1-877-655-5625 or visit the U.S. Funding website at commercial sale leaseback.