A legal document known as a mortgage note outlines the exact payment arrangements of a mortgage note. Another name for this document is promissory note, private mortgage, private mortgage note, or even just note or IOU.
The promissory note will give detailed information about the monies owed which were borrowed from the seller minus any down payment. Interest rate, schedule of payments, payment amount, and the borrower’s name and address are noted on the document.
The seller now holds a mortgage note which he or she can sell to private note buyers in exchange for a lump sum of cash money. There are many reasons that a person might decide to sell their mortgage note. Many note holders may need cash for bills, medical expenses, other investments, purchases or just as an emergency nest egg.
Some sellers never wanted to take a note in the first place, but did so because the buyer couldn’t qualify for a traditional home loan. When a private mortgage note buyer purchases a note they pay a lump sum to the note holder and then start receiving the monthly payments. These monthly payments are also known as a cash flow.
A private mortgage note buyer will need specific information regarding the terms of the note before making a purchase offer. The buyer will require proof of the value of the mortgage note, interest rate, balance due, amount paid on the note, whether the payments are current or delinquent.
The private investor will review the note terms and if interested will make an initial offer to the note holder to purchase the note. Once accepted the seller of the note will have to supply copies of additional documents which may include tax returns, proof of down payment, monthly payments for the last 12 months, title insurance, appraisals of the property and the amortization schedule.
A document known as an Assignment of Mortgage will be executed at the closing which is usually done at a title or escrow company in the county where the property is located. This transfers all or part of future payments to the note buyer.
It should be noted that this whole process is usually done without any involvement from the owner of the home. As long as they keep up their payments the home is theirs to keep and occupy. If they fail to make payments for 3 months or more whoever holds the note can proceed with the foreclosure process. So this transaction is strictly between the note holder and the note buyer.
The selling of a private mortgage note to a private buyer can take a few weeks to a month or two. It can also be done in person or by mail.
It’s easy to recognize a seller willing to finance a buyer in the purchase of a home. The For Sale by Owner signs at homes being sold is the most reliable way of knowing that seller financing is available.
