Private Mortgage Note Qualifications |
| Most people know the basic rules of thumb for underwriting mortgages. The borrower’s monthly payments and other debts shouldn’t exceed 36%, income regularity is critical and so on. We all know what happened when institutions decided they didn’t need to find proof about this critical information.
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Traditionally, seller-held mortgage notes and deeds of trust have made it possible to me more flexible about mortgage qualifications but after the housing crisis many people are understandably sceptical about allowing more flexibility. Does this mean it’s time to treat seller-held mortgage notes like institutional loans? Happily, the answer is no. The key is to gather intelligence on the borrower.
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Institutions know that there’s wiggle room with their rules and traditionally moderated them by examining individual borrower conditions, but during the bubble they just processed mortgages as fast as possible, often authorizing substantial loans on little or no paperwork. To bring out the real advantages of seller financing you need to investigate potential borrowers thoroughly.
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While you may find reasons to reject applicants you’ll also discover borrowers who are much more reliable than their financial profiles would suggest. You’ll discover self-employed individuals with remarkably stable businesses who are typically given poor conditions by the banks. You’ll find individuals with low lifestyle expenses who can carry a greater debt ratio than most, and recipients of windfall cash who don’t want to wait to be reassessed.
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Make no mistake: You have to be at least as vigilant as an institutional loan officer if not more so but your narrower focus lets you explore possibilities they don’t consider. Do a good job and you’ll be on your way to a valuable, well-seasoned note – the type we pay the most for when we buy mortgage notes. If you’re holding a note now, click the link to see how much you could earn.
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