The New Mortgage Lender By Default – The Home Seller
Today’s mortgage crisis has generated a boom in the private mortgage note business (Notes created by owner financing). Desperate home sellers are increasingly becoming the mortgage lender by necessity as banks have gone to the other extreme in lending practices. In the sub-prime days, lenders would give you a mortgage, often for 100% if you simply had a pulse. Now except for government backed mortgages (FHA, VA, USDA), you need twenty percent down, near perfect credit and fully documentable income in the way of federal tax returns. Unfortunately, these extremely tight lending practices have left a lot of very good, low risk homebuyers out in the cold. This is particularly true for millions of self-employed homebuyers who often have plenty of money for a down payment along with good credit. They just may not be showing a lot of taxable income in order to minimize (legally) their taxes. Their aggressive tax strategy means they can’t qualify for a mortgage loan. As a result, the homeowner has to step in to save the day or rather to save their day.
Now, I realize that every homeowner may not have this option, but it could work great for many homeowners. It is a great option for homeowners who have some equity in the property as opposed to those where the mortgage is equal to or greater than the value of the home. Interestingly, a lot of home sellers aren’t even aware that they can sell this newly created note, which is a valuable marketable asset. They can even sell their note to a note buyer once the note has some seasoning (payment history) on it in order to get a higher price. Many Note Buyers will be glad to purchase the note at the same time the homeowner closes on the house. This gets the homeowner an all cash sale and while the homeowner takes a discount on the note to sell it (a dollar today is worth more than a dollar tomorrow), it moves the home quickly, usually fetches top dollar and can often be sold without any real estate commissions. The result is a win/win.
So while the Fed is throwing Billions and Billions of taxpayer dollars at the banks, the banks still aren’t lending. Most of them are simply hoarding this cheap or free money or using it for mergers and acquisitions. As a result, the homeowner is having to take charge of their own destiny, just as entrepreneurial Americans have always done.
For more on note buying and selling go to sell my note.