Article by Anna Peacocks

Many private purchasers present the note purchasing process a mystery. And while not every mortgage note buyer has the identical requirements just like a stock mutual fund there are five key factors that affect the price a mortgage note buyer will pay for a private mortgage. I have listed them below.

These following are the primary factors in note discounting. Each factor falls into one of two discount criteria, perceived risk and the time value of money, which I’ve noted on each factor:

1. The amount of equity in the property based on its appraised or estimated price or sales price, the greater the purchase price, as there is less perceived risk for the note buyer.

2. The amount of seasoning on a note, meaning the amount of time the buyer/borrower has been making timely payments. In this example note buyers are mostly looking for a long timely payment history. Note investors want to see that the mortgage note is being paid on time and the longer, the better. (Risk)

3. The interest rate on the mortgage note. The greater the interest rate, the higher the price paid. Private note holders should be aware of this fact. Sadly, most note holders hurt themselves when it comes time to sell a note when they gave the buyer a low interest rate on the note. If, as many gurus predict, we go into a period of significant inflation due to all the government spending, the value of their private note could go down dramatically as the interest rate on the note is almost always fixed. (Time value of money.)

4. The period of time remaining on the note. While this will affect the note’s price, some mortgage note buyers like lengthier periods than others. (Time value of money)

5. The borrower’s three credit scores. Most private mortgage investors have established minimum credit score requirements in order to buy a private note. Additionally, they will want to examine the buyer’s credit report for its history, including bankruptcies, foreclosures, etc.

Lastly, some real estate promissory note buyers will add a sixth factor, the size of the purchase outlay (Risk). The larger the amount of exposure, the less liberal many private investors will be on the buyer’s credit, seasoning, etc.

About the Author

Anna has been writing articles online for nearly 3 years now. This article was prepared on behalf of Note Buyer and Mortgage Buyer where you can learn more about mortgage note buying and selling.