Owner-financed Deeds of Trust and notes can be valuable financial instruments for both borrowers and lenders. The following attributes and documentation will improve value and marketability when selling or evaluating the worth of notes.
Attributes
High Credit Score
Credit scores are a critical gauge of a borrower’s creditworthiness. High credit scores suggest a lower risk of default, making the note attractive to potential investors. A borrower with a high credit score is likely to make consistent payments, thus increasing the value and reliability of the Deed of Trust.
Low Loan-to-Value Ratio
The loan-to-value (LTV) ratio is a measure comparing the amount of a mortgage with the appraised value of the property. A low LTV ratio implies a higher stake of equity for the property owner, minimizing the risk of the note holder in case of default. Notes with low LTV ratios carry an increased level of security and financial buffer.
Loan Seasoning
Loan seasoning refers to the age and payment history of the loan. A seasoned loan with a verifiable payment history boosts investor confidence and proves the dependability of the borrower to repay.
Down Payment
A significant down payment reduces the LTV ratio and signifies the borrower’s investment and commitment to the property. It also provides the benefit of immediate cash liquidity in times of need.
Property Maintenance
Property maintenance and improvements can significantly increase the long-term value of the property and note.
Certification
A note vetted or serviced by a certified professional will avoid any legal or financial compliance risks and ensure that buyers and sellers meet all regulatory standards. Professional certification enhances the worth and reputation of the note.
Real Estate Comparables
Real estate comparables (comps) are comparable properties in the specific area in which you are looking to buy or sell and are used to figure the value of real estate by comparison. Accurate and realistic comps add credibility to an appraised value and foster trust in the note’s financial health.
Borrower’s Application
A correct and detailed borrower’s application, including employment history and financial record, offers investors a comprehensive understanding of the borrower’s overall economic situation. This reinforces the credibility and appeal of the note.
Documentation
To confirm and support the value of the Deed of Trust and note, meticulous documentation is crucial. Important paperwork includes:
- Verifiable payment history, such as bank statements and tax returns.
- Dates, receipts, and pictorial evidence of property maintenance and upgrades.
- Credit reports.
- Appraisal reports which are exact, current, and certified.
- Legal documents related to the Deed of Trust and note.
- Certification by a registered Mortgage Loan Originator.
Conclusion
Following the outlined attributes and providing correct and thorough documentation will increase the value of Owner-Financed Deeds of Trust and Notes and be a robust asset in the financial marketplace.
For further questions, please contact our professional and experienced team at American Equity Funding.