Owner Financing Glosssary
Author: Robert E Young
Author: Robert E Young
Balloon: A large payment on a note, usually due at the end of the payment schedule. Notes with balloon payments are considered riskier than fully amortizing notes unless there is a clear and obvious exit strategy. The availability of affordable conventional financing is crucial. In the market we have today, a good balance between the risk of a balloon, and the time value of money issue, is to create a balloon that is due 10-12 years out.
Sales Price - refers to the amount that the property sold for.
Note Seasoning - A note is considered seasoned when at least 12 payments have been received. A well-seasoned note is more valuable than a green note
Down payment - the payment is the initial upfront portion of the total amount due and it is usually given in cash at the time of finalizing the transaction.
Note Holder - A person or entity who owns the promissory note. In Seller Financing the note holder is the seller of the property or the person who accepted the agreement to receive monthly payments for the property.
Title Insurance - insurance that compensates for loss from title defects or encumbrances (as liens) that were unknown but should have been discovered at the time the policy was issued.
Protective Equity - The cash down payment made at the time of purchase represents the hard equity most important in determining the safety of a note. The less protective equity available, the less valuable the note is. A potential note buyer will always get an appraisal to establish the fair market value of the collateral securing the note;
Term - The amount of time it takes a note to mature
Amortization Period -
Seller financing - Seller Financing occurs when real estate is sold and the seller provides financing to the buyer for all or part of the sale price. The seller becomes the lender, or the bank, by offering financing to the buyer in the sale of their property.
Owner financing -
Note Finder - cash flow specialists who have an insiders understanding of what note buyers are actually looking for. They will act as the go-between for the buyer and seller, scouring newspaper ads and MLS listings for properties advertised as For Sale By Owner. Getting a note finder on board early in the process can help a note seller immensely when it comes time to sell the note to an investor. A qualified, knowledgeable note finder can help design a note with the sort of payment characteristics that would make it salable and attractive to investorsbefore the mortgage note is even written!
Note Professional - Expert in seller financing techniques and strategies. Able to put together real estate transactions outside of conventional financing methods that benefit both the buyer and seller.
Discounting: The practice of adjusting the price of a note to compensate for factors such as term, payments, interest rate and security.
Equity: The amount left over after subtracting the loans from the value of the property.
Escrow: A neutral third party stakeholder that receives the instruments, contracts, documents and funds in a transaction as needed from both parties. Escrow sees that the terms and conditions of the contract are fulfilled according to the escrow instructions.
Face Value: The original principal balance appearing on the face of the note.
Loan to Value (LTV): The measure of the security of a given loan. It is calculated by taking the amount of the loan and any senior loans and dividing that by the properties current value.
Note: A written promise to pay with all terms and conditions of the obligation signed and in the proper legal format.
Note Holder: The person currently in ownership and possession of a note and entitled to collect all its remaining payments.
Payor: The person obligated to make the payments on a note.
Secured Loan: A loan (note) which has specific collateral pledged to secure its payment
About the Author:
Robert E Young is a real estate investor who specializes in Seller Financing Techniques and strategies. Robert is an expert and can help you with identifying the options you have with your real estate note. Whether you need assistance in creating a note or you want to identify the options you have with an existing note
The Texas Note Company, LLC can help you.
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