Seven Steps to Increase Value When Selling an Owner-Financed Mortgage Note

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Is it time to sell your owner-financed mortgage note? American Equity Funding recommends these seven steps to increase a note’s value.

1. Choose the right borrower

Always require potential borrowers to fill out an application and pull their credit. Pending permission, American Equity Funding will do this free of charge. Credit is one of the most important criteria for ensuring a reasonable price on a note. The higher the credit score, the lower the risk and the greater the potential reward for the note purchaser.

2. Secure the best interest rate

Conduct due diligence by researching current market trends in the local area and secure the highest interest rate obtainable at the time of sale. The rate of interest charged can significantly affect the price value of a note. While important to comply with local, state, and federal laws,

owner-financed transactions typically receive 2% to 4% more than bank loans. In general, banks may not be willing to take risks involved; thus, a seller-financed mortgage note is used.

3. Implement a short term

Keeping the note term as short as possible will facilitate a better selling price. However, it is also important to maintain a feasible payment plan for the buyer. Most investors encourage a ten-to-twenty-year term which results in an affordable monthly sum.

4. Obtain a sufficient down payment

A sufficient down payment strengthens the Loan-to-Value (LTV) ratio, heightens the possibility of a quick sale, and boosts the value of a mortgage note. LTV can be improved organically by the passage of time and the appreciation of property values.


Loan-to-Value (LTV): The amount of equity a payer has in the property. For example, if a

property sells for $100,000 with a $20,000 down payment, the remaining mortgage note is $80,000. The LTV is then 80%.

Investment-to-Value (ITV): The total investment of a mortgage note purchaser. For example, if an investor pays $70,000 for the note above, the ITV is 70%.

5. Employ a professional

Employing a qualified professional to prepare your documents will guarantee that your note follows all state and federal laws. Attorneys specializing in real estate will be able to assist in these matters. There are many moving parts when selling an owner-financed property, and a Registered Mortgage Loan Originator (RMLO) is often needed to underwrite the loan. America Equity Funding can recommend a properly licensed RMLO in individual states.

6. Purchase a mortgagee title insurance policy

A mortgagee title insurance policy protects the lender from future claims to ownership of the mortgaged property and is highly recommended. The cost is usually minimal in most states

(approximately $100.00), especially when purchased at the same time as the sale of the property.

The policy will cost more if bought when selling a mortgage note.

7. Charge a reasonable late fee

Charging a reasonable late fee that follows state and federal regulations has dual benefits; it encourages the purchasers to pay on time and helps decrease the stress of collection calls. In most states and jurisdictions, the late charge must be between 0% and 5%.


Heeding these beneficial suggestions when structuring your owner-financed mortgage note will

facilitate a successful and profitable note-selling result! Don’t hesitate to get in touch with American Equity Funding, Inc. for more information.