Because of the stricter lending requirements and an influx of lower credits scores brought about by the recession, the number of private mortgages notes have steadily risen.
In order to qualify for a mortgage from the bank, homes need to pass certain tests and qualifications.
The recession has forced many families to abandon their homes or allow it to fall into disrepair, both of which make filing for a traditional mortgage extremely difficult. This is why many opt to sell via a private mortgage.
Another reason why people purchase mortgage notes in New York is to keep assets within the family. For instance, if one man is selling his home and his sister is need of one, it seems like a win-win situation to pay the interest on a home loan to the brother rather than a national bank.
More About Mortgage Notes
A mortgage note refers to a mortgage where the person being paid is an individual or private entity, instead of the traditional bank. The mortgage notes act as a lien against the property which then serves as collateral for the payment agreed upon in the note.
Strictly speaking, all kinds of mortgages include a mortgage note. A “mortgage note” is the document where all the terms of the loan are stipulated. In a way, they are also the same as promissory notes.
A mortgage note can easily be sold and liquidated. The owner of a mortgage note can decide to either keep receiving monthly payments as specified in the mortgage note or put up the mortgage notes for sale.
Banks create and sell mortgage notes as a way to generate income. The more money they lend, the more they can earn from interest. Banks follow specific guidelines when it comes to how much they have in reserve in order for them to lend out money. This exact amount is known as the reserve ration. If they don’t meet this ratio due to low liquidity, they can opt to sell some of their mortgage notes.
Individual sellers, on the other hand, can choose to sell for a number of reasons such as needing money to open up a business or build a college fund for their child. Typically, private sellers will sell to a company that purchases private mortgage notes to make the process quicker and smoother.
Purchasing Mortgage Notes
Buying mortgage notes, especially distressed mortgage notes in New York, has become more popular in recent times. If you want to try your hand at investing in mortgage notes in NY, you have two options. You can either purchase from a company that sells mortgage notes or purchase it directly from a private note seller.
Banks that choose to sell mortgage notes because they do not meet their reserve ratio can choose to sell their distressed mortgage notes. You see a certain note, let’s say one with an unpaid balance of $128,934 with 214 payments remaining with a 5.5% interest rate for 360 months. Because it isn’t performing, you can purchase this for a relatively small amount – around 58% of the unpaid balance or $74,781.
As the new owner of the note, you can contact the homeowner and find out why the payments have stopped coming in and what their future plans are. If they say they still want to keep their home, you can work together to find a way to get them paying again.
Because you already purchased the note at a relatively low price, you can afford to be more flexible in the payment terms. You can discuss new interest rates, decrease the balance, or come up with other conditions to make the deal more favorable to both parties. If, for instance, you get the homeowner to agree to continue their original agreement of paying $794.90 monthly at 5.5% interest, you stand to gain 10.92% profit.
If this seems interesting to you, then your next step is to find a place that does sell mortgage notes.
When you purchase through a bank, the bank will more likely than not have rigorous guidelines in place for the notes they sell. This means you may not be able to get a sizeable discount on your note or negotiate terms with them.
On the other hand, buying through a company that sells mortgage notes gives you a little more leeway so you get favorable conditions on your notes.
Invest Through Us!
If you are looking to start investing in mortgage notes in New York, sign up now with Melanin Homes to become a preferred buyer or schedule a FREE consultation to learn more. At Melanin Homes, we have numerous mortgage notes for sale, so you have the pick of the lot. Start investing in mortgage notes with Melanin Homes!
