Handling large amounts of money can be stressful in uncertain times. Bills begin to add up, and significant lifestyle changes, such as losing a job or sending a child to college, can only increase your need for funds.
For homeowners who need immediate cash flow, one option is to sell mortgage notes. But how does that process work, and is it right for you?
In this article, we’ll discuss what mortgage notes are, why someone may want to buy or sell a mortgage note, and how the selling process works.
What is a mortgage note?
A mortgage note is a type of promissory note. A promissory note is a written agreement between a borrower and a lender that contains the details of the loan and the agreement to repay a loan over time.
Mortgage notes include specific details about a home loan, including:
- The principal amount of the loan
- Terms of repayment
- The duration of the loan
- Date and place of issuance
- Interest rate
- Prepayment penalty information
The private lending company or bank that you make payments to is also the one that holds your mortgage note. When you pay off your home loan, you can take possession of your mortgage note, meaning you’re able to sell it and receive financing from a source other than a bank.
Common loan types with mortgage notes include:
- Secured loan. A secured loan uses assets, such as a house, as collateral. The mortgage note may include a lower interest rate and a longer payment term.
- Private loan. Loans made by banks or credit unions with terms and conditions. The lender may own the property and have fewer regulations. They can set up the note to their liking.
- Institutional loan. A loan from a traditional mortgage lender or bank. These are heavily regulated, and the mortgage note must comply with standard interest rates and payment terms.
A mortgage note gives lenders security throughout the lending process because it creates a legal obligation for borrowers to repay the loan. But once you hold your own mortgage note, you aren’t beholden to any outside institution—unless you want to sell your note.
Why You Should Consider Selling a Mortgage Note
The leading motivation for people selling mortgage notes is obtaining a large sum of money in a timely manner. Both private homeowners and real estate investors can sell notes to fund personal expenses or business ventures.
Here are some of the most common reasons people sell their mortgage notes:
- Invest in new real estate ventures
- Pay off student loans
- Stash extra money for retirement
- Afford expensive home renovations or repairs
- Pay off medical bills
- Build up emergency savings
There are no requirements or restrictions for how you use the money.
Depending on how much money you require, you can arrange one of these selling options with a buyer:
- Sell the entire note
- Sell a specific dollar amount
- Sell a percentage of the mortgage payment
Buying Mortgage Notes
Individual people and institutions in the secondary-mortgage industry often buy and sell notes. Once a note owner agrees to sell a note to a buyer, the buyer takes possession of the note and all of the legal obligations and privileges that come with it.
We should note that mortgage note buyers are purchasing the debt that remains on the note and secured interest in the property, not buying the property itself. That means if your lender sells your mortgage note without your knowledge, it won’t affect your monthly payments or ability to live in your home.
Choosing a Buyer
When you want to sell a mortgage note, it’s important to choose a responsible and trustworthy buyer. Buyers gain legitimacy by having a real estate property license and passing the verification process with a local agency, like Florida’s Bureau of Real Estate Services. You can also choose to sell to an individual real estate investor, who uses mortgage notes to earn passive income.
Here at Associates Home Loan, we’re proud to buy mortgage notes for all sorts of properties—from single-family homes to apartments, commercial buildings, and more. We’ll sit down with you to ensure you understand the selling process and have all the information you need to make the decision that’s right for you.
How the Process Works
Note holders can sell their mortgage notes by finding a licensed private buyer or company.
The first step is deciding whether selling mortgage notes is worthwhile for your situation or if you’d prefer to take a different route, like getting a home equity loan.
The second step is to think about how much money you need, how much your home is worth, and if you want to pursue a full or partial sale. The answers to these will all depend on your individual situation and financial circumstances.
Next, you should decide which company to work with when completing the sales. Most companies offer online or simple over-the-phone quotes.
When determining a quote, companies usually look at factors like these:
- Property value. The current market value and evaluation for the type of property. A third-party estimate might be necessary.
- Credit score. The higher the credit score of the property owner, the higher the value of the note.
- Payment history. The more regular payments, the higher the value of the note.
- Interest rate. A higher interest rate with a shorter loan length makes the note more valuable.
After you receive a quote, the buying company will complete an appraisal of the property and a title search to examine the legal history of the land. Once these steps are complete, you will need to finalize the sale by attending a closing to sign the final paperwork. The sale officially transfers ownership of the note, and payment will deposit into your bank account.
Ready to get started? Contact us today!
To learn more about home loans and to start the process of selling your mortgage note, contact our team at Associates Home Loan. We’re ready to answer your questions and assist with all things mortgage-related!