If you provide seller financing on real property that you own, you’ll end up holding a promissory note - a promise from the buyer to pay you back. A promissory note represents a real asset that you own - cash in the bank so to speak. But like many investments, promissory notes aren’t exactly liquid. Meaning, if you find yourself in need of a large sum of money for any reason, you can’t just take a withdrawal out of the bank. But, this doesn’t mean you’re out of luck when you need cash. That’s because you can still tap into [...]
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There’s no question the decision to offer seller financing involves an amount of risk. A buyer wouldn’t be seeking seller financing if their financial situation allowed them to secure a traditional bank loan. That’s why sellers should secure a large down payment on a loan. In addition, they should set an interest rate that’s higher than what banks can offer. The higher down payment means a buyer has more skin in the game. Making defaults less likely. The higher interest rate is the price a buyer pays for their less than stellar credit position. Unfortunately, even when a seller makes [...]
If you’ve provided owner financing on real property that you own, often you find yourself thinking about selling that note to free up cash for other needs. You probably also wonder what your note is actually worth. You may even assume it was simply equal to the amount of principal still owed on the note. The fact is, the value of mortgage notes is based on a number of different factors, and it’s a good idea to understand the things that determine it. Is Your Note Sellable? Investors invest money into things because they want to earn [...]
You may have heard of the term lien position or lienholder in a real estate or mortgage transaction. This article discusses lien positions and why attention should be given to them when considering certain seller financing agreements. To understand what a lien position is, let’s start with a little bit of background on how a mortgage transaction works. Most individuals buying their first home aren’t likely to have saved the large amount of money needed to pay for the property in cash. Even if they did, it wouldn’t make much financial sense to sock the entire [...]
Do Rising Interest Rates Make Selling Your Note a Better Way to Secure Cash for Personal Needs? During the financial crisis of 2008, the Federal Reserve lowered the federal funds rate. This meant the prime rate - the interest rate on which banks base their lending rates for consumers - was lowered as well. They did this to encourage banks to lend money and spark economic growth. As the economy improved between 2008 and 2015, the Federal Reserve has gradually increased the federal funds rate. In fact, they have raised it six times since 2015. There are at [...]
These days, most of us who are considering buying a home pretty much start the process the same way - we contact our bank or other institutional lender and apply for a mortgage loan that will allow us to borrow a rather large sum of money and pay it back over a long period of time. After considerable due diligence to determine not only our own our creditworthiness, but also the value of the property we want to buy, the bank lends us the money and we have a home. It might be hard to believe, but the home [...]