How to structure your mortgage note for resale to an Investor
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How to Structure Your Mortgage Note for Resale to an Investor
Summary
This guide highlights important considerations for preparing residential mortgage notes for resale. Consult a licensed mortgage broker or attorney in your state for legal advice.Key Considerations
Successfully structuring a mortgage note can mean the difference between a quick sale at a good price and struggling to sell it at all. Here's how to set up your mortgage note for resale:
1. Secure a Large Down Payment
- Aim for a down payment of at least 25% of the property value. While 15%-20% can work, notes with less than 15% equity are risky and typically receive lower bids. Anything below 10% may not attract buyers.
2. Assess Borrower's Creditworthiness
- Check the borrower's credit score. A score of 650 or above is considered excellent, while below 590 is poor. A higher down payment is advisable for lower credit scores. Keep a copy of the credit report for the investor’s review. Gather the borrower's debt-to-income (DTI) ratio, ensuring it does not exceed 45%.
3. Obtain a Property Appraisal
- An appraisal ensures an accurate bid and a smooth transaction by eliminating surprises about the property's value. While not mandatory, having an appraisal can significantly increase your chances of a successful sale.
4. Set a High Interest Rate with a Short Term
- Choose an interest rate that the borrower can afford, and aim for the shortest term they can handle. This makes the note more attractive to investors.
5. Limit Loan Term to 10-15 Years
- Loans with terms longer than 12 years often require larger discounts. An ideal term for investors is between 5-10 years.
6. Include a Prepayment Penalty
- Ensure this is in line with your state’s regulations to deter early payoffs.
Final Thoughts
This guide offers a starting point for structuring your mortgage note for resale. For specific legal advice, contact a licensed mortgage broker or attorney in your area. Being well-prepared can lead to a smoother transaction and help you avoid potential setbacks. Good luck!
You can find the original non-AI version of this article here: How to structure your mortgage note for resale to an Investor.
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