Using a Seller Carry-back Mortgage to Buy a Mortgage Note

By: Judson Voss

Buying mortgage notes isn't all that hard as you've probably heard from some other property investors. There are two basic ways to get into your first mortgage note. One is to approach a bank and the other is to approach a homeowner about their own homeowner mortgage.

Purchasing the homeowner mortgage note involves dealing with people who have owned their house free and clear and went to sell it but had some trouble getting anyone interested. After a while the homeowner is approached by one interested buyer who came along with less than perfect credit.

How a Homeowner Mortgage Gets Started
The interested buyer couldn't go get a bank loan, but he did have about $20,000 in cash saved up. He offered to give the money as a down payment and offered to pay the homeowner the remaining price of the property, say $100,000 over the next ten years at 10% interest!

That is a great deal and a great investment. Most sellers take their profits and stick it in the bank, which even with the highest current interest usually only gets them about 3 or 4%. By letting the buyer pay you directly at the higher interest rate for a mortgage, you'd be making more money!

So, the buyer moved in with his family and spent a couple years in the home making regular payments. In two years, his mortgage to the homeowner mortgage owner is down to $87,000. Suddenly, the mortgage owner realizes that he needs money now; in fact he needs about $70,000 to make another great investment. This is where you come in with the Seller Carry-Back Mortgage plan.

Buying the Homeowner Mortgage
You can approach that mortgage note owner by offering to give him a cash lump sum for the right to collect the remainder of the mortgage note. The mortgage note owner says great and agrees to sell. You pay him $70,000 for the rights to his mortgage note that he first created with the home buyer.

The mortgage owner takes his $70,000 and goes out to invest in that next hot deal and you, the real estate investor gets to collect the rest of the mortgage. The mortgage note owner is no longer involved with the property and never seen from again.

The buyer still keeps the same rates on his mortgage to you and continues to make the same payments towards his own house. At the end of the remaining eight years on the mortgage the buyer owns his house outright and you have made a $17,000 profit on your investment of only $70,000.

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