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4 Important Considerations Mortgage Note Buyers Have While Buying Your Mortgage Note

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Anyone who wishes to sell a mortgage note should know its market value so that you get the best deal. Top mortgage notes buying companies in California, such as BGK Investments, can help you ascertain the true value of your mortgage note. Here are the most important things that are considered while buying mortgage notes in California.

TYPE OF PROPERTY

  • The type of property held by the mortgage note is obviously the most important criterion. Equally important is the said property’s current market value.

INTEREST RATES

  • The interest rate on the face of the mortgage note.
  • The prevailing interest rate – Real estate experts at BGK Investments, top mortgage notes buying firm in California, say that increasing mortgage interest rates will negatively affect the market value of fixed-rate mortgage notes.

MORTGAGE STATUS

  • The size of the cash down payment made at closing.
  •  Owner’s equity the borrower has in it.
  • The number of monthly payments remaining on the mortgage note. Shorter term mortgage notes are valued more highly than longer term mortgage notes, say experts at mortgage notes buying company, BGK Investments at California.

BORROWER’S CREDIT SCORE

  • The higher the borrower’s credit score, the higher the market value of a mortgage note, say mortgage note buying experts in California, BGK Investments.

Make sure that you go to a mortgage note buying company that offers you honest deals. Only a few experienced and reputed companies, such as BGK Investments in California, will help you get the best value for your mortgage note.

3 Important Factors That Determine If a Mortgage Note is Sale Worthy

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Property investment experts at California, BGK Investments explain hot it is determined whether a particular mortgage note is sale-able or not.

DOWN PAYMENT
Down payment is the primary factor to decide whether a note is any good. The down payment (or cash from the property buyer to property seller at the time of sale) will determine if the loan can even be sold at all. The more money a note seller will collect as a down payment, the more money the note will sell for when it comes to liquidating the property. To get great offers from investors, there should be at between 20 and 30%, with 10% being the least down payment for any offers at all. Ask California’s top property investment experts, BGK Investments for the best deals on mortgage notes.

CREDIT OF BORROWER/PROPERTY BUYER
The higher the credit of the property borrower, the more money the mortgage note will sell for. If their credit is 600 or higher, the note has a chance of selling.

RECOURSE vs. NON-RECOURSE
If you are selling your property (commercial or residential) to a corporate entity, family trust, non-for-profit, etc., a mortgage note with no recourse (aka – no personal guarantee/no guarantor) can mean a loss of thousands of dollars. The guarantor should also have a good credit score, for it to make any difference. Investment properties advisor, BGK Investments, provide you the best possible service on every note transaction as if it were their own.

Know the premium Benefits of Being a Mortgage Holder

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Being a mortgage holder is one of the premium money making options in the US. It simply happens by providing seller financing on a home sale. The major profit is earned through the competitive rate of interest secured by real property. Some of the premium benefits enjoyed by all mortgage holders are listed below-

1. Higher Rate of Interest

The process of becoming a mortgage holder is simple; a person can mortgage or lend money to a third party against a property he owns and mutually decide the long-term principal and interest payments. These payments may be negotiable however; the interest amount is normally on the higher side which acts as one of the premium money making options for the mortgage owner. This investment option has given boost to rigorous selling and purchase of mortgage notes in the US.

2. Secured Investment

A mortgage note holder makes one of the safest investments as compared to stocks or other options available. Though there is a risk of getting back the loan amount from the borrower but as the security the property mortgage holder has, secures his money and gives him a secured investment option. If the borrower is unable to make the payments, the mortgage holder has complete right to retain his property and recover his money by selling it or renting it out or as preferred by him. On the other hand, firms like BGK investments help mortgage note holders with easy selling of their mortgage notes at competitive prices and get relieved from the stress of payments and installments.

3. A Liquid Asset

Again, this is where BGK investments Inc. and similar firms can help you convert the loan to cash by taking advantage of active market in mortgage notes. We at BGK investments Inc. help individual investors to buy mortgage notes and take over the debt. It means that the mortgage holder does not have to wait for 20 or 30 years to receive his money and get relieved from the stress right away.

BGK investments Inc. is synonymous to easy selling of mortgage notes and loan modification. It is a leading fund acquisition firm in California that offers premium benefits to its clients; Quick closings, Excellent customer service, Competitive quotes, Providing customized options, Strong financial backing, Flexibility on all note purchases, Confidentiality with all transactions and Credibility in the industry are a few to name.

If you’re also willing to sell your mortgage notes with BGK, get going by filling an online form and get your quote or call at Toll Free: (888) 335-3139

Know all about Selling Mortgage notes at BGK Investments Inc

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BGK investments Inc. is a leading note buying company in Encino, California and is led by Mr. Ben Keisari, who has more than 15 years of experience in the real estate industry. In an endeavor to become one of the best mortgage note buying company, Ben has established a wide network in the industry and has tie-ups with various top financial institutions like Chase, Old Republic Equity Credit Services, Inc., Bayview Financial, United Mortgage Loan & Investment, GE Commercial Finance, GMAC, Wells Fargo, Bank of America, and PNC f.k.a. National City Mortgage.

Ben started the company with a vision to provide one of the best commercial investment services to private as well as national investors in the city, and facilitate easy selling of mortgage notes in town. While most of the people think mortgage selling is a tedious task, BGK strives to make the whole selling process as easy as a piece of cake for the sellers as well as the buyers. All the real estate agents at BGK excel in buying and selling of mortgage notes and also help investors in shortlisting lucrative options for residential and commercial property investments.

We at BGK focus centrally on customer satisfaction and have successfully managed to create a big clientele of happy patrons by offering them the following benefits-

  • Quick Closings
  • No Out of Pocket Expenses to Note Seller
  • Competitive Top Dollar Pricing
  • Strong Financial Backing
  • Flexible Note Buying Programs Nationwide
  • Customized Purchase Option in Writing
  • Fair Business Dealings

Besides providing hassle-free dealing to all our clients, we also help them with timely analysis of their mortgage note and know how to make it more valuable. For instants, keeping a fine record and copies of all the payments received or obtaining the timely copy of property insurance policy from the buyer can help in increasing the current value or worth of your mortgage note. Another major concern resolved by BGK is the full or partial selling of the mortgage note; we purchase both, all or part of your remaining payments. It helps you to get a lump sum amount in a single shot that you can use for multiple purposes [solving any financial crisis or invest in commercial or residential property]. With best of our resources and manpower, we strive to provide you hassle-free dealings in California.

5 Reasons Owners Offer Seller Financing

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Why would a seller allow a buyer to make payments over time for the purchase of property?

Wouldn’t the seller rather get paid now and require the buyer to obtain a bank loan?

Here are 5 reasons property owners offer seller financing:

1. Reduced Marketing Times

What is the first thing a real estate agent does when property is not moving and has been on the market for 60 to 90 days? They reduce the price and add the tagline “price reduced” to all advertising and signs. Rather than reduce the price, it might be beneficial for the seller to offer financing. Buyers provided with financing can certainly pay full price in exchange for the many benefits they receive with owner financing, including the money they save by not paying expensive loan fees, origination fees, and points.

2. Increased Inventory of Prospective Purchasers

By offering owner financing, the seller increases marketability with a wider group of available purchasers. Statistics show that almost 40 percent of the American population is unable to qualify for traditional bank financing. While not all of the “unqualified” group would be an acceptable risk for owner financing, it still widens the market of prospective buyers considerably. Anyone who has added the words “Owner Will Finance” or “Easy Terms” to a For Sale ad or Multiple Listing Service (MLS) listing knows the phone will ring off the hook with interested prospects.

3. Reduced Closing Times

Another advantage of offering owner financing is substantially lower closing times. A closing involving a third-party conventional lender can take six to eight weeks while closing a seller-financed transaction through a reputable title company can take as little as two to three weeks. This is due to the reduced paperwork and less restrictive due diligence process.

4. Investment Strategy for Hard to Finance Properties

There are many properties that encounter financing difficulties including mixed use property, land, mobile and land, non-conforming, low value, and others. Investors realize excellent returns by paying a reduced cash or wholesale price on a hard-to-finance property and then reselling at a higher retail price with easy financing terms.

5. Interest Income

Why let the banks earn all the interest? Sellers can keep the property-earning income even after they sell by offering owner financing. For example, a $100,000 mortgage at 9 percent with monthly payments of $804.62 will pay back $289,663.20 over 30 years. That additional $189,663.20 (over the $100,000 mortgage) is power of interest income!

Work with Owner Financing Specialists

If considering seller financing, be sure to consult with a qualified professional to properly document the transaction.

It also helps to speak with note investors to gain insight on appealing terms and structuring techniques. This assures top-dollar pricing should you ever want to convert the payments to cash by assigning your note, mortgage, deed of trust, or contract to an investor.

 

Safekeeping the Original Mortgage Note

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Can you easily locate the original mortgage note?

This important legal document should be kept in a safe place, and here is why!

The promissory note is a promise to pay or IOU from the property buyer. It spells out the amount due and terms of repayment. In legal jargon it is known as a negotiable instrument. Similar to a check, the original must be presented to collect or prove ownership.

If the seller desires to sell and assign the payments to a note buyer, the investor will ask for the original note to be provided at closing. The promissory note is then endorsed over to the investor. Similar to endorsing a check, the holder signs on the back of the note.

Sample Note Endorsement on Back of Original Mortgage Note

Pay to the order of, (Insert name of investor), without recourse.

 

Dated this ____ day of _______, 2011.

(Seller Signs and Dates)

Sometimes the note endorsement is executed on a separate piece of paper, also called an allonge. The allonge is then attached as a permanent rider to the original note. The endorsement enables the investor to prove they are a holder in due course, with the same rights of repayment as the original note holder.

An investor may also ask for the original recorded mortgage or deed of trust at closing. However, if this original is lost, an investor will usually accept a certified copy from the county recorder’s office.

A lost original note, on the other hand, can cause a problem. In most states the note is not recorded. If the original note becomes lost a note investor may ask for a duplicate or replacement note to be signed by the payer or maker. This means going back to the person that owes you money and asking them to resign. This relies on their cooperation and can cause delays.

The investor will also ask for a lost note affidavit from the seller or note holder, stating the note has been lost and it will be presented if found at a later date.

Some investors will consider accepting just the lost note affidavit with a copy of the original note.  However, this is increasingly rare as a lost original note can create problems foreclosing should the buyer stop making payments.

The best option is to avoid losing the note by keeping it in a safe deposit box or a fire and waterproof safe. Some sellers elect to have the original held by their attorney or a third party servicing agent for safekeeping.

Whatever method you choose, be sure to keep the original mortgage note in a safe place that is easily located!

 

Avoid Three Seller Financing Mistakes

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Would you rather have $97,000 to sell your $100,000 note or only $80,000? The difference in usually comes down to the big three. Here’s the three biggest mistakes note sellers make and how to avoid flushing money down the drain.

Mistake #1 – Failing to Check Credit

The payer’s credit report lets you know how timely they have paid bills in the past. This is a good indicator of how they will pay on a seller-financed note. It also has a huge impact on how much an investor is willing to offer, should the seller ever decide to sell the note payments. Sadly, many sellers never check credit when offering owner financing.

The seller financing solution?

Have the buyer fill our a simple one page application that grants permission to pull their credit upfront or ask the buyer to pull their own credit and provide the report. Whenever possible, avoid accepting owner financing from any buyer with a credit score below 650 (above 700 is ideal).

Mistake #2 – Charging a Low Interest Rate

Money today is worth more than money tomorrow. A simple look at escalating food and gas costs will show a dollar today won’t buy as much next year or the year after! This concept, known as the time value of money, plays a large role in investor note pricing.

All factors being equal, an investor will pay more for a higher interest rate note. We’ve seen sellers charge 5% or less on notes. Imagine the discount when an investor wants a 10% yield!

The seller financing solution?

Charge at least two to four percent above the standard bank loan rate for a similar loan transaction. Be sure to take into consideration the credit, property type, and down payment, which may justify further increases in the interest rate.

Mistake #3 – Low or No Down Payment

The down payment determines how much equity the buyer has in the transaction. The greater the equity, the less likely a buyer will default. There is a reason banks require mortgage insurance whenever a buyer puts down less than 20%!

In desperation, some sellers will even accept a zero down payment. Unfortunately, these buyers have even less at stake than a renter. A renter at least has a security deposit along with the first and last months rent!

The seller financing solution?

Require a down payment of at least 10% to 20% at closing.

So these are the BIG three when it comes to valuing a seller financed note. Sure other things come into play (including property type, seasoning, terms, etc) but these are the three that impact pricing the most.

While a seller might not be able to find a buyer that meets the ideal in each category, they can attempt to compensate for any deficiencies. For example, a lower credit score might result in a higher down payment and interest rate. A great credit score might result in a more favorable interest rate.

Just remember that when the buyer receives a break, it’s coming out of your pocket as the seller!

Seller Financing – How Much Can The Buyer Afford?

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Many sellers accept owner financing without any idea of how much the buyer can actually afford to pay.

The last thing a seller wants is to stress over receiving monthly payments or worse, getting the property back through foreclosure.

3 Ways to Calculate Payment Affordability Before Accepting Seller Financing

The amount a buyer can afford to spend on a house depends on their income, overall debt, cash they can put down, credit rating, and the mortgage terms.

There are three different calculations that are traditionally used by mortgage companies to determine how much house a buyer can afford. These are known as the Income Rule, the Debt Rule, and the Cash Rule. While owner financing does not require the strict use of these rules, it makes sense to utilize the standard as a guideline. (Better safe than really sorry, right?)

1. Income Rule

If you ask a real estate agent or lender for an estimate of how much house a buyer can afford, they’ll typically use a version of the Income rule. The Income Rule says that the monthly housing expense — which is the sum of the mortgage payment, property taxes, and homeowner insurance premium — cannot exceed a percentage of income.

This is often referred to as the front-end ratio and ranges from 27 percent to 30 percent for most lenders.

If the maximum percentage is 28 percent, for example, and the monthly income is $4,000, the monthly housing expense can’t exceed $1,120 (4,000 x .28 = 1,120). If taxes and insurance on the home are $200 per month, the maximum monthly mortgage payment is $920. At 7 percent interest for a 30-year loan, that payment will support a loan of $138,282. Assuming a 5 percent down payment, the maximum price of the home this buyer can afford would then be $145,561.

2. Debt Rule

The Debt Rule says that the total debt expense – which is the sum of the total mortgage payment plus monthly payments on existing debt like cars, credit cards, etc. – cannot exceed a percentage of income.

This is often referred to as the back-end ratio and ranges from 36 percent to 43 percent.

If this maximum is 36 percent, for example, and the monthly income is $4,000, the monthly payment can’t exceed $1,440 ($4,000 x .36 = 1,440). If taxes and insurance are $200 a month, and existing debt service is $240, the maximum mortgage payment the buyer can afford is $1,000. At 7 percent interest and a 30-year loan, this payment will support a loan of $150,308. Assuming a 5 percent down payment, the maximum price of the home would then be $158,218. (You’ll notice that’s significantly higher than what we calculated using the Income rule.)

3. Cash Rule

The Cash Rule says that the buyer must have cash sufficient to meet the down payment requirement plus other settlement costs.

If the buyer has $12,000 and the sum of the down payment requirement and other settlement costs are 10 percent of the sale price, then the maximum sale price using the cash rule is $120,000 (12,000 divided by .10 = 120,000).

Since this is the lowest of the three maximums in this example, it would be the affordability estimate that is safest to use for this scenario.

Putting It All Together for Seller Financing

How much house a buyer can afford is easy to overestimate if you ignore one of the three rules. Don’t make the same mistake as many of the mortgage lenders that ignored these standards in past years.

Granting loans to buyers that could not afford the payment played a large role in the current sub prime toxic mortgage mess that is currently in the headlines. There is no federal bailout program for sellers accepting owner financing.

Play it safe and be sure the buyer can afford the house payment before accepting payments over time.

Seller Financed Notes and Interest Rates

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The interest rate a seller agrees to accept when providing owner financing to the buyer has a large impact on the note’s value. Unfortunately, many sellers overlook this important decision.

Why Private Mortgage Note Interest Rates Matter

Inflation Fighter

Each year it seems the cost to buy the basics just keeps going up. It’s not your imagination; it’s inflation.

In fact in July 2008 that inflation rate was 5.6 percent higher than in July 2007 (based on the Consumer Price Index reported by the U.S. Department of Labor on August 14, 2008). Worse yet, some basic items like energy increased 29.3% over that same time frame.

So what does inflation have to do with seller-financed notes? Well a seller would need to at least charge an interest rate equivalent to the inflation rate just to break even!

Return on Investment

Rather than just breaking even, a seller desires a return on their investment. By accepting an IOU or payments from the buyer that money is tied up. Plus, once the property is sold the new owner will be the one to directly benefit from any increase in property value.

The seller is now acting as the bank and should expect a return at least equivalent to the interest rate a bank is charging for a similar loan. The seller does not have the protection of private mortgage insurance that many banks require adding another level of risk that should be rewarded by an increased rate.

Since the buyer is saving the costs a traditional bank might charge for a loan (points, underwriting fees, origination fees, etc.) it is reasonable to expect them to pay an interest rate above what a bank would charge. On average, it is recommended that a seller financed note carry an interest rate of 2-4% higher than bank rates to compensate for these matters.

Improves Resale Value to Note Buyers

If a note holder ever desires to sell their future note payments for a lump sum of cash, they will quickly realize how important the note interest rate is to investors.

While investors look to a variety of factors to determine their pricing, all things being equal, a higher interest rate results in a higher purchase price from a note investor.

For example, a seller holds a note with a balance of $100,000 with monthly payments of $1,110.21. If the note rate is 6% and the investor wants a 9% yield then the offer would be $87,641. Now if the note rate were 4% the offer would decrease to $81,623, but if the note rate were 8% the offer would increase to $95,274.

For simplicity of comparison, these examples assume the monthly payment amount remains the same and there are acceptable credit, equity, and documentation. But you get the idea, the higher the interest rate the more valuable the note.

There Are No Take-Backs!

The time to give serious consideration to the note interest rate is at the time of creation. There are no take-backs or do-overs. The rate you agree to accept at closing stays the interest rate for the life of the note. The only way to change it later is to get the buyer to agree and execute a formal note modification. It’s highly unlikely a buyer or note payer is going to agree to have their interest rate increased at a later date (unless there is some advantage to them).

Be sure to give the amount of interest charged on a seller financed note serious thought. It will affect the value of your note not only today, but also far into the future.

What is Seller Financing?

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When a seller allows a buyer to make payments over time for the purchase of property, it is known as owner financing or seller financing.

This private financing by the seller can take the place of a bank loan or be in addition to a conventional mortgage.

The payment amount, interest rate, and other terms are agreed upon between the buyer and seller. The amount financed by the seller will depend upon the buyer’s down payment and whether there are any bank loans.

Here’s an example of how seller financing works…

  • A property owner advertises his or her house for sale, either on her own or through an agent.
  • A buyer makes an offer, and they agree upon a sales price of $175,000 with a 10 percent down payment of $17,500.
  • Rather than requiring the buyer to obtain a bank loan, the seller carries back the balance of $157,500 in the form of a note and mortgage. It could also be a note and deed of trust or a real estate contract, depending on the customary documents for that state.
  • The note spells out the terms of repayment. In this case they agree upon 8.5 percent interest at $1,211.04 per month based on a 360-month amortization. The seller doesn’t really want to wait a full 30 years for payments, so the note requires payment in full, known as a balloon payment, within seven years.
  • A title company or real estate attorney is used for the closing to be sure all parties are protected and the documents are in compliance with and state laws.

Bank Loan Vs Seller Financed Mortgage Notes

Because the buyer is making payments to the seller rather than an institutional lender, the legal arrangement is called a private mortgage, seller carry-back, installment sale, or owner financing.

The seller has the same mortgage rights as a bank, so if the buyer does not make payments, the seller can foreclose and take the property back.

When the seller prefers cash today rather than payments over time, the rights to future payments can be sold or assigned to a note investor on the secondary market.