How to Maximize the Value of a Mortgage Note

If you’re reading this it likely means you’re considering selling your mortgage note for any number of reasons.

If you are like a lot of people, you may be tired of collecting monthly payments over time and would prefer a lump sum of cash—today.

Unfortunately, many mortgage note sellers receive low offers from investors. But why?

Because, oftentimes, the note holder didn’t structure the note the right way from the start.

Let’s explore a few ways you can increase the value of a mortgage note.

Work Only With Borrowers That Have Good Credit

The best way to ensure a high cash value for your mortgage note is to build-in the value right from the start of financing.

Seek to work with borrowers that have a favorable credit score because most mortgage note buyers base their offers on the borrower’s credit score. After all, the buyer of a note is just a lender and wants to make sure they can get repayment on the loan.

The buyer wants to make sure that they’ll receive a fair return on their investment, which will only happen if the borrower makes every payment. So, credit is an essential factor in this type of transaction.

Improve the Borrower’s Credit Score

If you already have a mortgage note and your borrower’s credit is less than ideal, you can still increase its value before a sale. To do this, you’ll need to work with the payor to improve their credit score.

Even people with low credit scores will often make on-time payments.

In this case, place your note with a loan servicing company that will report the borrower’s monthly payments straight to a credit agency (Experian, Equifax, etc.).

If the borrower is making on-time payments, their credit score will gradually improve, and so will the cash value of your mortgage note.

As a general rule of thumb, make sure to wait at least a year to sell your note so you can see how your borrower’s credit has improved.

Create a Shorter Loan

Many note buyers prefer loans with shorter terms that run 10-20 years. While they will purchase 30 (and even 40 year loans), the time value of money can impact the pricing.

You can be proactive by creating a shorter loan term before you agree to extend seller financing to a borrower. This will make the mortgage note more attractive to buyers who want to maximize their earnings without having to wait for several decades to be paid off.

Make sure that payments are affordable to the buyer and are within their ability to repay based on their income.