Note Selling
Seen a few posts about offering owner financing and selling the note at closing. How does this work as far as the note buyer approving the home buyer. A note buyer isn't just going to carry the note for any joe schmo right? Why would a home buyer have any better chance of being approved by a note buyer vs. a bank/mortgage company? Am I missing something?
Kevin,
You are correct, in that a note buyer is an investor, and as investors, they are not going to buy files that have a 475 mid score with a foreclosure 2 months ago. In the lender world, those that underwrite such files are suspect at the very least, becuase we all know those buyers will be foreclosed on (in some cases, again, unless they file BK)
With rehabbing, many lenders more and more are raising the issue of title seasoning as a reason why they will not originate the loan, because they are not comfortable with the fact that the investor has been on title for enough time for them to feel secure. They need to see 3 months, 6 months, 12 months.
When there are other options, why dance for them? If the business doesn't fit their parameters, why not move on to legitimate alternatives?
Sure there are lenders that don't have title seasoning problems, but then you have to consider your price point to compete in selling. If you are rehabbing "correctly", you are not under-improving the house, nor are you over-improving the house. You are rehabbing it to fit in with the neighborhood standards.
So in light of this, your house is like every other house that is in good condition. What can you do to set it apart when you are selling? Usually, you have to reduce the price by 5-15% of FMV to make it "stick out" on MLS, or if selling FSBO, in your advertising media.
By selling with owner financing with 5% down or zero down at full FMV or 95% of FMV respectively, you compete with the financing and low (or no) down payment. This attracts more buyers, creates more offers, and sells your house faster, with you controlling your exit strategy, while avoiding the problems we have discussed here.
In addition, note buyers are more flexible than banks, and usually get more creative with structures in unique situations. They have an investor mentality vs. a bank mentality, and in my experience, that means looking for ways to do the deal, rather than looking for ways to not do the deal.
Time is money, and every day that passes when you have not sold your house, is another day the buying power and value of the dollar continues to dilute, because bank loans (and all loans) push new money into the economy, which dilutes the value of the dollar.
Selling your rehabs faster through an owner financing program like this allows you to do more volume, and do more properties in a year, and have access to your money more quickly, which results in more profit per year or period of time.
And that just makes good business sense to me. Hope this helps, Dave