There are many types of mortgage note and contract for deed purchase options beginning with two basic methods, the Full buy and the Partial buy. We will give further details on each option below. These options are based on your needs at the time you decide to sell your mortgage note or contract for deed. The following questions and answers (italicized) may help you decide which option is best for you:
The time value of money is an important concept. It simply means that due to inflation and time that 100.00 dollars today will not be worth 100.00 next year. Therefore you must continually earn more money to maintain your current standard of living.
|Here is a sample graph of the time value of money and its affects on a 100 dollar bill. In other words this is what your dollar will be worth after factoring time and inflation rate.|
A note that is paying 100 dollars per month for 20 years would be affected by the time value of money and the purchasing investors yield or desired return.
Use the following examples to understand each option. This example is for illustration purposes only.
All monetary figures in the Note Sale Options section are for illustration purposes only, prices and partial purchase options will vary depending on a number of scenarios. Every situation is handled on a case by case basis. We can discuss these options with you based on your particular needs. For the following options, please refer back to the example above.
Full purchase is the purchase of a cash flow in its entirety. All of the payments become the sole property of the investor. You are given an offer based on 180 payments of 955.65. If you accept this offer you will get a lump sum of cash at closing and the investor gets the mortgage note and the payments that go with it.
Full Purchase (example only):
Total note sold at investor yield of 9%. 100,000.00 face value with 9% buy yield = 94,220.79
Payments 1-90 at 10% investor yield = 60,339.34 cash at closing 91-180 payments revert back to you. You get a total of 146,347.84 at the end of 15 years or 180 months.
The purchase of future installments with the seller continuing to receive immediate payments up till a specified time. For an example you would receive payments 1-90 and you would sell the remaining 91-180 payments. The discounts would be steeper because the investor would be buying payments where he would have to wait 7.5 years for payments to start so he can begin getting his return. The Time Value of Money really comes into play here, and it’s not for the good.
Reverse partial (example only):
First 1-90 payments you keep. 955.65 monthly payments x 90 = 86,008.50 paid over 90 months Sell 91-180 at 10% investor yield = 28,591.00 paid now 86,008.50 + 28,591.00 =114,559.50 You get a total of 114,559.50 at the end of 7.5 years or 90 months.
The purchase of a portion of each payment for a specified period of time and amount. The seller would receive the remainder of the payment split. For an example you would sell the first 477.83 and then you would keep the remaining 477.83 of each payment. The risk is the investor will always be the first to be paid should payments be short, or if the home is foreclosed on.
Split disbursement partial (example only):
You sell the first 477.83 (955.65/2) of every payment: 477.83 x 180 payments = 86,009.40 x 10% investor yield = 44,465.64 at closing. You keep the remaining 477.83 per month. 477.83 x 180 = 86,009.40 over the term of the loan. 44,465.64 + 86,009.40 = 130,475.04 paid by the end of 15 years or 180 months.
Home sells for 125,000 and a 25,000 (20%) down payment. You carry a 1st position note for 100,000 to be sold at closing for 9.5% investor yield. 100,000 x 9.5% = 91,517.66 at closing. 91,517.66 + 25,000 down = 116,517.66 at closing. $116,517.66 for your 125,000 home. Creating a second position note at closing and receiving the payments with interest will help to soften the discount required for this type of deal. This is usually used for specific situational needs and is not for everyone because of the discount involved. One of the reasons someone may favor this type of transaction is that owner financing with or without using a Realtor moves homes quickly. You may be able to save Realtor fees if you advertise your home with “For sale by owner/owner financing too approved parties”.
Please call us to discuss these options and decide which would be the best deal for your particular needs.