Step One: Deciding to Sell
The process starts with the decision to sell your note. For some, mortgage notes can easily be transformed into cash in a time of need. But others may have used seller-backed financing to get a property fast and intended to sell the note from the start.
Reasons to sell:
- Dividing an estate
- Unburdening yourself from note management
- Managing assets to qualify for retirement benefits
- Free up capital to invest differently
- Selling your business
Many people start the process by searching for information on whether their note is saleable. Several terms describe the different promissory notes eligible to be sold on the secondary market. If you have one of the following types of notes, you can liquidate that asset for a lump sum:
- Mortgage Notes
- Seller Financed Mortgage Notes
- Contracts for Deed
- Land Contracts
- Balloon Notes
- Interest Only Notes
- Performing Notes
If you’re interested in selling but not sure whether your note is saleable, the answer is probably yes. And there is no harm in checking: We offer no-cost, no-obligation quotes. If your note isn’t eligible to be purchased, you owe us nothing.
Step Two: Choosing Between a Full or Partial Sale
Mortgage notes can be sold in two different ways: selling the entire note or selling a portion of the payment. Both result in your exchanging money from long-term payments for a lump sum, but the biggest difference is how large that lump sum is.
A full sale means liquidating the entire asset and exchanging your full-ownership rights for a one-time cash payout. This option is typically chosen in the case of dividing an estate or when using seller-based financing is the only way to sell a property. Most note holders who sell choose this option.
Note owners also have the option of a partial sale if they need capital but wish to retain some of their ongoing payment stream of the note. In partial sales, a percentage of the payment goes to the note owner, while the remaining percentage goes to the mortgage note buying company.
Step Three: Selecting a Note Purchasing Company
The next step is choosing a mortgage note buying company. Selecting a mortgage note purchasing company determines the level of customer service and expertise you’ll have access to during the process, as well as the amount of money you’ll be able to get for your note.
Our partners at MortgageNote.org have been in the business of buying notes since 1993. We have the experience to do everything right the first time. That experience means we can close your sale in as little as five weeks.
When you call us, we’ll give a free quote for how much we can offer for your mortgage note. To get you an accurate quote, these are the documents they need to help you:
- Promissory note
- Title commitment
- Closing statement
Once we have this information, we give you a quote over the phone. From there, we send you a copy of the quote and contract for purchasing your note.
Step Four: Getting Your Quote
Once you get your quote, you may want to go over it to understand how we arrived at the amount we’re offering.
The biggest factors affecting amount of your quote:
- Property owner’s equity: The more money the property owner has invested in the property, the more likely the owner is to pay off the mortgage.
- Property owner’s credit score: Higher credit scores mean lower risk for note buyers and higher quotes for note sellers.
- Payment history: The longer positive payment history the note has, the more we can offer you for it.
At this point, you send back the contract signed, with all necessary documents attached, and, for the most part, the rest is in our hands.
Step Five: The Property Evaluation Process
During this step, everything is complete on your end, but we’re working hard to get everything ready to officially close the sale.
Here is what we’re taking care of during this part of the process:
Appraisal Process:
- We do a full evaluation to find the current property value of the real estate. This typically happens through a Broker’s Price Opinion or, depending on the situation, a Drive-by Appraisal.
Title Search:
- While the appraisal looks at the physical aspect of the property, a title company examines the legal history of the property. This process checks for any claims, liens, easem*nt rights, unpaid taxes and other restrictive legal statuses.
Step Six: Closing the Sale, Getting Your Money
Once everything comes back as expected — and it typically does — we move forward with closing the sale of your note.
This is the point in which the property owners are informed of the sale of their mortgage. We reassure them that their mortgage remains the same and let them know where to send future payments.
To finalize the sale, you need to attend a closing at a local title company to sign the final paperwork. The closing paperwork makes the sale official and transfers ownership of the note.
After we get the forms from the title company, typically the same day as closing, we wire the money directly to your bank account.
FAQs
After a mortgage note is sold to another lender, the buyer becomes the new holder of the note, and the borrower will make their future payments to the new note holder. The note seller either will receive a lump sum of cash as payment or a series of payments, depending on the terms of the sale.
What are the 5 steps of the mortgage process? ›
Once you know the steps to obtain a mortgage loan, it will make the process of buying a home much easier.
- Step 1: Apply and Pre-qualify. ...
- Step 2: Loan Processing. ...
- Step 3: Home Appraisal. ...
- Step 4: Final Approval. ...
- Step 5: Closing.
The buyer of the note takes on the role of the lender and gains the right to receive the monthly mortgage payments made by the borrower. Note sales are commonly used by banks and other financial institutions to free up capital, manage risk, or clean up their balance sheets.
How to do a mortgage note? ›
The note should include the full name of each borrower and any co-signers that will be responsible for the repayment of the loan. It should also include the name of the legal name of the noteholder. If this is a business entity, the name of the business should be listed. The property address must be included.
How does note selling work? ›
You get a lump sum for a portion of the note's value and the note buyer receives payments from the business owner for a specific amount of time. At the end of that time, you can resume collecting the business owner's payments or sell another portion of the business note.
How does selling with a mortgage work? ›
In general, you must pay off any mortgage or loans secured on a home when you sell the property. You can list the property for sale and go through most of the process while still owing a balance, but you must pay the loan off as part of the closure of the sale.
What are the chances of getting denied after pre-approval? ›
What are my chances of getting denied after preapproval?
| Loan program and purpose | Closing rate |
|---|
| Conventional refinance | 79% |
| Conventional purchase | 80% |
| FHA refinance | 65% |
| FHA purchase | 78% |
2 more rowsSo, what do lenders look at when deciding to approve or deny an application? Lenders consider four criteria, also known as the 4 C's: Capacity, Capital, Credit, and Collateral. What is your ability to pay back your mortgage?
What are the 5 Cs of mortgage lending? ›
Called the five Cs of credit, they include capacity, capital, conditions, character, and collateral. There is no regulatory standard that requires the use of the five Cs of credit, but the majority of lenders review most of this information prior to allowing a borrower to take on debt.
How does a note work? ›
A note is a debt security obligating repayment of a loan, at a predetermined interest rate, within a defined time frame. Notes are similar to bonds but typically have an earlier maturity date than other debt securities, such as bonds.
The primary benefit of selling notes is the ability to generate passive income. Depending on the format and pricing of the notes, sellers can make a steady stream of profit from their notes sales.
How to value a mortgage note? ›
The value of a mortgage note lies in its ability to serve as a secure, interest-bearing investment, with its worth typically equating to the remaining principal and interest. However, its market value may vary based on factors like credit risk, interest rates, and the remaining duration of the note.
How to sell a mortgage note? ›
Mortgage notes can be sold in four steps:
- Find the details and documentation of the mortgage note you want to sell.
- Research companies and their ratings, and obtain a free quote.
- Determine if the quote aligns with your financial goals.
- Move forward with the sale. The buyer will complete the underwriting process.
A mortgage note is a written agreement outlining the specifics of a mortgage loan. Whereas a mortgage, is a loan backed by actual property. A mortgage note, also known as a promissory note, is the document that is generated and signed at the time of closing.
Who holds the mortgage note? ›
A mortgage note is held by a mortgage provider. Because a mortgage note is a security instrument, it can be bought and sold on the secondary mortgage market.
How to transfer a mortgage loan to another person? ›
After confirming your eligibility, you can work with your lender to start the transfer. Depending on your loan and lender, this can include completing paperwork and verifying that you're current on your payments. The lender will also assess the new borrower's credit profile. Complete the transfer.
Can a mortgage note be transferred? ›
Keep in mind that the mortgage note could be sold or transferred to another servicer on the secondary market. This is a common occurrence. If this happens, the terms of your loan won't change, your lender will notify you and you'll receive notice on where to send your payments.
How much can you sell a mortgage note for without? ›
Typically, sellers may receive between 65% to 95% of the note's face value, but prices can vary widely based on the note's perceived risk and current market conditions. Navigating the world of mortgage notes can feel like walking through a maze, especially when you're looking to sell or cash out.
How does a seller note work? ›
A seller note is a form of financing wherein the seller formally agrees to receive a portion of the purchase price — i.e. the acquisition proceeds — in a series of future payments. It is important to remember that seller notes are a type of debt financing, thus are interest-bearing securities.
