how to structure note to increase chances of getting it bought...
Im currently setting up an owner financing note. Purchase price 33k, 13.25% interest for 11 years, applicants credit just below conventional lenders limits. Are there any structuring requirements I should add in order to make the note look better?
Thanks
Cole
Quite an interest rate. I'd usually say throw in a 5yr balloon, but not with that interest. I may be interested in purchasing? Keep it up! -Pete <IMG SRC="images/forum/smilies/icon_smile.gif"> [ Edited by pacfranz on Date 03/07/2003 ]
How much is the seller putting down? What's the LTV?
These factors can make a difference in saleability of the note.
In addition to what the other folks asked, seasoning helps too. I know some note buyers that won't touch rates over 13-14%.
Quote:
On 2003-02-27 10:24, 40corporation wrote:
Im currently setting up an owner financing note. Purchase price 33k, 13.25% interest for 11 years, applicants credit just below conventional lenders limits. Are there any structuring requirements I should add in order to make the note look better?
Thanks
Cole
What is the property? A Sfr? MH? What is the value? Seasoning (pay history) and equity are the leading indicators of buyability. To improve on equity, you may consider taking a second to improve on the first's LTV, ot selling a partial on the note, increasing the safety, and your yield over time.
[addsig]
These are the most important factors in creating a hight quality mortgage note:
The purchase price
The Down Payment
The intrest Rate
Buyers Credit worthiness
The amortization
Balloon payment(an absolute must in structuring a note)
Man you guys are good. Its a single family home in a stable neighborhood. 2 bed brick 1.5 baths. Comparable houses in the neighborhood sell between 40k-50k. The buyer had a good payment history until both got laid off last year then they got behind. Actually was only late once in four years. How does a balloon payment work (one big lump sum after a certain date?) I have the contract in my attorneys office right now being written. If anyone wants it you can let me know and I can have my atty prepare it to suit. Im sorry im not really knowledgeable about this industry but im kinda new. Also sorry it took me so long to respond its cabbage season here!
Thanks Again
Cole
The investors I broker to, which are some of the most established and professional in the industry, say to NEVER put a balloon on the note.
There is no guarantee that the payor can either pay the balloon in full, or qualify to refinance when the balloon comes due.
It reduces the saleability of the note, and the purchase price you will secure for the note ( I assume you are doing simultaneous close, new note)
I want to second the comment about the balloon reducing the ability to sell the note. All the notes I have handled attracted a lower price when there was a balloon. Granted this is a smaller discount the further out the balloon is.
[ Edited by loanwizard on Date 04/30/2004 ]
Dear Mr. Cole,
The purchase price you state at $33,000 and the interest rate at 13.25% and the period of time 11 years. If the purchase price is the face of the note then your payment per month to pay in full in 11 years is $470.91.
Stop! Halt! Back up! The above note while interesting in concept and obviously designed to create a result, would in 10 cases out of 11 end up in a splotch,bang,boom.
You should get on a property like this some form of downpayment. At least $3,000 and it can be in many forms. Turnips, Chickens another note unsecured if you must.
Increase your sale price by $3,000. Thus you are selling now for $36,000. The note should have payments of say $30 a month. an interest rate of 6% and with a due date of say 7 years. You will have a balance due at that time but I do not think this transaction will go to term. It should refinance.
Now lets look at this $33,000. Your interest is too high and is a generator of bad feelings and antaganistic future behavoir. Cut the interest rate to 9%. Extend the duration of the note to 15 www.years.The monthly payment is now $332.22. This is not a mansion. If he makes $1,400 a month he can handle.
If you need money you can sell payments in this note or you can sell the entire note at a set discount. You will find it difficult to sell any note with no established equity. Damn, the Property Owner is just renting. He needs a carrot and your note creats it.
My solution was an attempt to correct the lack of stated downpayment. If you can get one and take a smaller amount back in consideration go for it.
You should season this note before you offer it to a note buyer. Be prepared to bargain, wheedle whine and whimper. If his the note buyers name is Simon and he is not on a TV show, and carries a whip and a bunch of dogs. Watch it.
Good luck
Lucius