It is well known that Owner Financing sells properties quickly, especially in cases where the properties or potential Buyers do not fit traditional loan/mortgage requirements. Seller offers to hold the mortgage note (owner financed mortgage) and receive monthly payments from Buyer just like a bank would.

The problem with this approach has been that sellers sometimes don’t want to charge small monthly payments, but instead want to collect soon after closing to buy another property, or for many other reasons. The benefits of owner financing are many, but sometimes they are not enough to help close a deal.

Basically, this is how an owner-financed real estate mortgage note works:

1. Seller sets sales price at exact appraised value and announces “Owner Will Finance… No Bank Qualification!”

Interested buyers go through a pre-qualification process to determine the best prospect.

2. Seller and Buyer agree on the structure and terms of the note to be created (note buyer can provide some suggestions) and sign a Real Estate Purchase Agreement.

3. At closing, Seller creates a first mortgage and shortly thereafter sells/assigns the mortgage note to the note buyer.

4. Seller receives Buyer’s down payment plus proceeds from sale of promissory note. In a seller-financed note purchase, the note buyer typically covers all closing costs and the cost of their own appraisal of the property.

Example:

Let’s say the seller owns a property that has been appraised at $100,000, but because it is not a compliant lot, he is having trouble finding qualified buyers. Buyers do not seem to commit to the purchase and those who do do not get their mortgage approved by the Bank.

Seller has house listed for $90,000, expecting to get $80,000-$85,000 after incentives and costs have been paid. But even this price does not attract real buyers.

This is where a note buyer can step in. The seller would be advised to create a promissory note for $90,000, the remainder ($10,000) being the down payment. The interest can be 8%, term 360 months, paying $660.39 per month (Principal + Interest).

The note buyer would purchase this note for approximately $80,000 in cash shortly after the closing of the real estate property. Add to this the down payment, and the seller gets a total of $91,000 (minus closing costs on the real estate transaction).

Shortly after the real estate closes and after the new note is recorded, the note buyer makes the purchase of the note and the Seller gets his money. A perfect example of how an owner financed mortgage makes the sale of a property possible. And there are no hidden fees or costs besides your regular real estate closing costs that have to be paid anyway. The buyer of the Note generally covers all closing costs on the purchase of the Note.

This approach attracts a good number of buyers and within a few days, the Seller can have their cash in hand.