What Is the Value of My Owner-Financed Mortgage Note?
American Equity Funding is often asked about the potential value of selling an owner-financed mortgage note. Respectfully, that is a complicated and impossible question to answer without correct and adequate information.
For instance, when selling a car, the buyer needs to know such aspects as the model, year, mileage, condition, etc., before settling on a price. Similarly, many factors determine the price when selling an owner-financed mortgage note.
- Amount of down payment on the property at time of purchase.
- Duration of payments (sometimes called seasoning). Typically, the more payments received, the better the price.
- Interest rate. In general, a lower rate means less value for the note. In some cases, loans are written at extremely low-interest rates, even 0%, for various reasons. This results in a lower purchasing price.
- Loan-to-value ratio (LTV). This means the worth of the property securing the mortgage in relation to the balance of the mortgage. If a property is worth $100,000 and the mortgage note balance is $80,000, the LTV is 80%. If the value is $100,000 and the balance is $95,000, the LTV is 95%. An 80% LTV will yield more money due to risk/reward.
- Pay record. Verifying a good pay record through bank statements, deposit slips, or canceled checks adds value to a note, especially if credit is weak. A high credit score is an advantage.
- Term of note. Normally, the shorter the time, the better. Balloons are okay but not preferred.
- Property type. Usually, an owner-occupied, single-family residence returns the best price. However, American Equity Funding, Inc. buys all types of property, including land, commercial, industrial, manufactured homes, and with land and business notes. We have also bought vehicle, paper, and solar panel debt instruments.
- Geographics. Property in areas of appreciation (rising values) may increase the assessment of a note.
- Industries. The fluctuation of specific industries, such as oil, can impact the note market.
- Employment. The purchase and price of a note can be influenced by employment. It may be challenging to purchase a loan by payers without work but not always impossible.
- Size of the mortgage note. Larger loans often result in a better percentage of the balance. Lower prices are due to economies of scale, as the costs between booking small and large notes are minimal.
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Selling A Note
Proper documentation is essential. We live in an environment with many laws and regulations, and correct information is crucial. Seek a professional for documents, such as an attorney in your state.
Specific details will aid the note buyer in covering the risk of the unknown and allow the best possible offer for a note. Deal only with those with whom you like and trust.
More note-selling information.
The following are examples that include several of the above components:
Example #1: A seller had an owner-financed mortgage note that was initially purchased for $355,000.00 with a down payment of $60,000.00. The remaining $295,000.00 was financed at 4% interest for 84 months (about seven years) with a monthly payment of $2,408.38.
In late 2021, American Equity Funding purchased the deed of trust with a residual of 70 monthly payments (approximately six years) and a balance of 4, 616.71. Following this period, a balloon payment was made for the remaining balance of $157, 121.00. Despite the low-interest rate of 4%, the purchasing price was $240, 000.00 for the note.
Fortunately, our client was able to purchase a dream home of choice with the note sale, and we purchased a lovely note. A win-win situation!
Example #2: If the original loan above had been set on a 360-month (30-year) amortization with no balloon payment, American Equity Funding could have only purchased the note for $191,000.00 due to the market yield at the time.
In today’s current market, the sale of the note in example #1 with the exact same terms and balloon payment would be worth $191, 211.00. The national real estate market and consequent rate hikes of the Federal Reserve cause this.
American Equity Funding was established in 1988 and is one of the industry’s oldest and most experienced note buyers. We have closed over 10,000 notes and real estate purchases. We always encourage our clients to research our excellent Better Business Bureau rating, Google reviews, and referrals from our many satisfied customers.
Please feel free to contact me at my office at 800-874-2389 to visit about your specific situation.
Steve Whitlock, Owner and Operator of American Equity Funding.
American Equity Funding is the most exceptional note-buying company, and we have been answering your major questions for over 35 years.
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