Do you know the primary criteria for establishing a sellable owner-financed mortgage note?
When setting up an owner-financed contract for a deed, mortgage, or deed of trust, American Equity Funding suggests the following primary criteria to increase the value and marketability, thus making the note sellable.
Primary Criteria
Credit Score
A credit score of 620 to 800 will increase the likelihood of prompt sales. The higher, the better.
Down Payment
A downpayment of 10% – 30%. A larger down payment will help overcome lower credit.
Interest Rate
The interest rate is significant, and American Equity Funding encourages 8%-12% for owner-financed transactions. However, the rate varies with the market and changes depending on the risk factors.
Property
Good condition of the property is essential. Pictures speak a thousand words, and professional photos of the real estate will help market the property to dependable payers and owner-financed note buyers.
Property within reputable school zones market faster and at better prices.
Examples
Here are three examples using the above criteria in various situations and the amount American Equity Funding (AEF) could offer for the note in today’s market.
Example One:
$150,000.00 sales price with a $30,000.00 down payment.
Financing is $120,000.00 at 12% interest for 120 months at $1,721.56 per month. The credit score is 750.
Assuming the value of the property is at least the sales price, AEF could offer 85-90% for this note. Following a year of positive pay history, we could pay up to 95% of the unpaid principal balance (UPB).
Example Two:
$150,000.00 sales price with a $30,000.00 down payment.
Financing is $120,000.00 at 12% interest for 120 months at $1,721.56 per month. The credit score is 620.
Assuming the value of the property is at least the sales price, AEF could offer 75-80% for this note. Following a year of positive pay history, we could pay up to 85% of the unpaid principal balance (UPB).
Example Three:
$150,000.00 sales price with a $15,000.00 down payment.
Financing is $135,000.00 at 12% interest for 180 months at $1,620.23 per month. The credit score is 620.
Assuming the value of the property is at least the sales price, AEF could offer 65-70% for this note. Following a year of positive pay history, we could pay up to 85% of the unpaid principal balance (UPB).
Many factors affect the value and marketability of a debt instrument. While some owners can sell their notes origination, other notes may need seasoning. Time and credit repair can often shore up a contract.
Residential Mortgage Loan Originator
American Equity Funding highly recommends a Residential Mortgage Loan Originator (RMLO).
If there is more than one contract per year, the law may require certification by an RMLO.
Different states have different compliance requirements.
A Residential Mortgage Loan Originator is crucial in bridging the gap between sellers and
buyers in real estate transactions. This is especially true concerning deed contracts with owner-financing.
The responsibilities of a RMLO include guiding clients through the intricacies of residential mortgage loans, ensuring that both parties understand the terms and obligations involved in the agreement.
For sellers offering properties on a contract-for-deed basis, an RMLO can help by structuring a financial plan aligning with the seller’s goals, adhering to applicable state and federal regulations, and conducting due diligence. This service is valuable when traditional mortgage loans are not possible.
Residential Mortgage Loan Originators ease the process by verifying the creditworthiness of potential buyers and ensuring compliance with laws such as the Dodd-Frank Act, which applies to residential property transactions. The legislation requires underwriters to meet specific standards for seller and buyer protection.
RMLOs are also responsible for preparing and keeping all necessary documentation such as disclosure forms and loan estimates to support transparency. They are adept at navigating the complicated regulatory landscape, including variations in legislation from state to state, which can affect the terms and enforceability of contracts for deed.
In addition to state-specific regulations, Residential Mortgage Loan Originators must follow federal laws like the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act
(RESPA), designed to protect consumers with residential mortgage transactions. These laws require clear and exact disclosure of loan terms and closing costs, ensuring that all parties are fully informed before completing the agreement.
Conclusion
Adhering to the primary criteria as outlined above for an owner-financed contract for a deed,
mortgage, or deed of trust will increase the value and marketability while making the note
sellable in the future.
Residential Mortgage Loan Originators offer a professional framework to successfully promote and manage property transactions. Their services enhance the security and efficiency of the transaction process and can apply to mortgages, deeds of trust, and contracts for deeds.
For further inquiries, please contact Steve or Ryan at American Equity Funding!
Steve
1-800-874-2389
Cell: 479-650-1488
E-mail: steve@americanequityfunding.com
Ryan
1-800-874-2389
E-mail: Ryan@americanequityfunding.com