Mortgage Note for Home Equity Line of Credit
Mortgage note buyers need to know many aspects of loan contracts before they jump into buying. A mortgage note buyer also needs to have plenty of cash on hand when deciding to buy a note. Sellers most likely will need cash quickly, so a mortgage note buyer will need to have adequate cash reserves for when the window of opportunity presents itself.
As a mortgage note buyer, you may wish to purchase privately held notes, contracts, deeds and trusts. This may include the buying of homes, commercial property or land. A mortgage note buyer and seller may be interested in simultaneous closings. A simultaneous closing is two separate closings occurring near-simultaneously. The first closing passes the title to the property from the seller to the buyer. At this time, the owner financing – seller financing is created, and the buyer becomes responsible for making monthly payments. After the property sale closes and the associated legalities are recorded, a second transaction occurs wherein the owner financing seller carries back a note that was created during the “first closing”.
If you decide to become a mortgage note buyer, you’ll need to learn how to analyze mortgage notes, prepare documents, obtain appraisals, secure title work, complete the documents including nonconforming paper and get the note sold. Mortgage note buyers will need to know the ins and outs of full purchases, partial purchases and split payment purchases. Most mortgage note buyers deal with single family residences, mobile homes, condominiums, land and commercial properties.
Mortgage note buyers often work with advisers to the seller such as realtors, attorneys, CPAs, financial planners, bankers, accountants, business brokers and mortgage brokers. As a mortgage note buyer for a business, you’ll need to determine the value of a business note. Such factors include the credit worthiness of the payor, the experience of the payor in the business he is buying, amount of money the payor has at risk and the length of time that the business note has been in place. You’ll also need to determine the structure of the business note, including payment amount and repayment period and interest rate. Since there are no “standard” business notes or payors, there are no standard amounts to pay for business notes.
Mortgage note buyers need to determine the seller’s motivation for selling. Seller carryback mortgage notes and trust deeds are usually sold because the individuals holding them are not in the banking business. Therefore, they don’t want the trouble of collecting late payments, and they can use the extra cash for other investments, personal reasons such as college tuition, vacations, purchase of a new car or other reasons.
Mortgage note buyers need to be informed and educated to make the transactions as smooth and seller-friendly as possible. As with other businesses, word of mouth is everything when dealing with this particular industry.
HELOC stands for home equity line of credit, and are convenient for funding occasional needs, such as paying off credit cards, making home improvements, or paying college tuition. Most HELOC loans are second mortgages and the major disadvantage of the HELOC is its exposure to interest-rate risk. All HELOC loans are adjustable-rate mortgages (ARMs), but they are much riskier than standard ARMs as the rates are tied to the prime rate.
The minimum payments on a HELOC, at least in the early years of the loan, are interest only, which helps reduce the strain on your monthly budget. In contrast a home equity loan is a fixed-rate loan with amortized payments that include both interest expense and principal repayment.
It is not wise to try and compare the annual percentage rate on a HELOC loan with that of a standard loan since they mean two different things. The APR on a HELOC loan is the prime interest rate as reported in the Wall Street Journal and does not reflect other costs such as points or other upfront costs.
HELOC loans have a couple of other advantages for those who are into buying and selling properties. If you’re looking for a second home and the seller says, “I need $100,000 cash by next Tuesday” then your HELOC can provide such quick cash. Another situation where a HELOC will be advantageous is for a foreclosure auction. Payment in many states is required at the end of the auction day.
Other areas where a HELOC loan can be used are home remodeling, taking a vacation, consolidating bills, buying a car, truck, boat or motor home. A HELOC loan can also be used to pay for college tuition or other necessary educational needs.
The interest on HELOC loans may or may not be tax deductible so it’s best to check with a tax advisor on this one. When considering a HELOC loan is it best to first consider the amount of risk you’re willing to take. Will you be able to sleep at night? Will you constantly worry about losing your home? Remember, that you can’t put a dollar figure on peace of mind, so if a HELOC loan seems too risky for you, it probably is.
On the flip side, if you can tolerate some risk and in fact, willing to take some calculated risks, a HELOC loan may be just up your alley. If you ever find yourself using your account like an ATM card, then it may be time to rethink your situation. But if you need quick money for specific financial items a home equity line of credit just may be what the financial doctor ordered.
The Equity Loans website is an information site devoted to helping people make the right decision in regards to taking out equity loans. Equity loans are not right for everyone so it is best for everyone individually to weigh the pluses and minuses in regards to equity loans regarding each and every individual situation.
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