The Paper Business "Lingo"
By Theodore Hansson
While in the process of "getting started" it's important to remember that just plain "getting started" is the first goal. Don't get bogged down in a lot of details.
I'll begin with some mortgage terms etc. so you'll get an understanding of the business and you'll be able to speak the "lingo".
If this at first seems a little dry, please bear with me because it's important that you understand the terms involved.
But The Good News Is...
that in order for you to make money it's not necessary for you to understand everything!
So Don't Get Bogged Down!
What is important, however, is...
A Desire To Get Going, To Locate The People Who Have Mortgage Notes They Want To Sell... And To Turn That Information Into Money!
Synonymous Terms Just what is a "Mortgage", (or a "Deed of Trust" which it may be called in some states)?
Some states use the term "Mortgage" while others use "Deed of Trust". Basically the terms are synonymous.
Mortgage In a mortgage state you have two parties involved, a "Mortgagor" and a "Mortgagee".
The easiest way to remember which is which is to think that it's the person who lives in the house behind the door, who's making the monthly mortgage payment i.e. the "or" in "door", who is the mortgagor.
The mortgagee who receives the payment is usually a Commercial Lender, a Bank, Savings & Loan, or Mortgage Co. But a lot of times the mortgagee is an individual.
So, the mortgagor is the borrower and the mortgagee is the lender.
A mortgage is recorded at the county courthouse.
Deed of Trust A Deed of Trust is a little different than a Mortgage, but basically the same thing. In a Deed of Trust there are three parties involved whereas a Mortgage only has two.
A Deed of Trust has a "Trustor", a "Trustee", and a "Beneficiary". In this case it's the trustor who lives behind the door who makes the payments to the beneficiary. The trustee in the middle is usually an attorney or a title company.
The trustee basically insures that as long as the trustor is making the payments to the beneficiary, no one can come in and take the house away from him.
So, the beneficiary is the lender, who can be a Commercial Lender, Savings & Loan, an individual or whatever. The trustor is the borrower and the trustee is the middleman, usually an attorney or a title company. A deed of trust is also recorded at the county courthouse.
The mortgage or deed of trust is the document that creates a lien on a property or conveys a property to the mortgagee or the beneficiary as security for the debt.
For simplicity, let's use the term "Mortgage" from now on.
You can have a first mortgage, a second mortgage, a third mortgage etc. The position of the mortgage determines who is first in line, who is second in line and so on. For example in a foreclosure a first mortgage is more secure than a second mortgage and a second mortgage is more secure that a third mortgage and so forth.
Promissory Note A mortgage and a deed of trust always goes together with a "Promissory Note", usually called a "Note". Again, to make it as simple as we can let's just call it a "Note".
The note is the document stating a promise to pay the debt, the actual promise that someone makes to pay a certain amount of money at a certain interest rate over a certain period of time.
This debt is in certain definite installments. In other words, if there's $100,000 owed on a property, then there would be a mortgage and a note. The note would explain exactly how this $100,000 was to be repaid.
For example on a $100,000 note it could say that the borrower promises to pay $877.57 every month, at 10% interest for the next 30 years or until the note is paid in full.
The note is what we're interested in and that's what I'm going to explain in my manual how to buy, how to sell, and how in doing so you make a lot of money.
That's what we are in the business of.
We Don't Buy Or Sell Real Estate... We Buy & Sell Paper!
Actually we buy and sell monthly payment streams.
The only time real estate has anything to do with this is when it's the collateral or security for the note.
The note however is usually not recorded at the courthouse. It's considered a private document between the lender and the borrower and need not be recorded.
Please stay with me a couple of more minutes for a few other terms you should be familiar with.
After this it's all downhill, as explained exactly in the manual how we can make some good money in this exciting business.
Different Kinds Of Real Estate The real estate that is the security for the note can be an owner-occupied single-family residence, a rental, a duplex, a multi-unit apartment complex, a hotel, a 7-Eleven store, a vineyard in California, a gas station, a body shop, a mobile home (if the land goes with the mobile home), raw land or any other form of real estate.
Assignment Of A Mortgage If you buy a mortgage/note from someone, that person will transfer or assign it to you. Consequently if you sell a mortgage/note to an investor, you will execute an "Assignment of Mortgage" to the investor. An assignment simply means a transfer. This is a legal document that's also recorded in the county courthouse.
Purchase Money Mortgage Another term that is sometimes used is "Purchase Money Mortgage". It's a term that's used when the seller acts as the bank and lends the money in order to facilitate the sale of his house.
A purchase money mortgage or a seller financed mortgage is what you're going to be looking for when you look for someone who personally holds a mortgage.
Estoppel Certificate I don't want us to get bogged down in legal terms all day, but one thing that's very important when you get into this, is what's called an "Estoppel Certificate".
This is a legal document from the mortgagee and/or mortgagor stating the exact balance due on the loan at a certain point in time. For example when someone wants to check the balance, the monthly payment amount and the interest rate on a loan.
In other words, it's a legal document that states how much is owed from either the mortgagee's point or the mortgagor's point of view.
Loan-To-Value Ratio The "Loan-to-Value" ratio is very important. It's simply a ratio that tells us the percentage of the loan compared to the value of the property. It's a good indication of exactly what we are buying.
For example, look at all the loans on the property: the first mortgage, second mortgage, third mortgage, and so on and add them all up and divide then by the value of the property. This gives you the loan-to-value ratio.
For example if something is 100 percent loan-to-value, it means that the amount of loans on the property equals the value of the property. So if the property is worth $100,000, there would be $100,000 worth of loans on the property.
If the loan to value on a property is only 75 percent, it simply means that if a property is valued at $100,000, there's $75,000 in loans on the property.
Now, different investors work loan-to-values in different ways. There are all sorts of loan-to-value restrictions that you will have to work with when you get into paper.
For example, some investors may lend up to 80 percent of the loan-to-value on an owner-occupied single-family residence, because this is the safest, type of mortgage that you can buy.
Why?
That's because an owner living in his house is not likely to walk away from his own home if he runs into financial difficulties! Especially, if he has some equity in his property.
So a loan on an owner-occupied single-family residence is the safest loan that can be made, and to invest in.
That's why banks and financial institutions will lend more on owner-occupied properties. For example, I believe the FHA (Federal Housing Administration, a Government agency that guarantees bank loans) guidelines are that they will lend up to 95 percent of a home's value if it's owner-occupied versus 85 percent if non-owner occupied (a rental).
Why would they do that? Simply because it's a safer loan.
If you have an owner-occupied single-family residence, the loan-to-value ratio may be 85% versus a 75% loan-to-value ratio for an non-owner occupied property.
Equity This is simply the owners money part in the property. For example if your house is worth $100,000 and you have a loan and owe the bank $75,000, it means that you have an equity in your property of $25,000 or 25%.
Rate Of Return The "Rate of Return" is simply the percentage of interest earned on an investment. Of course the investment we're talking about here is "Mortgage Paper".
For example, if you are currently paying 8% on your own mortgage to a bank, then the bank is getting an 8% rate of return on their money (the money you borrowed from them to buy your home). Get the picture?
Also, the shorter the term on the mortgage, the lower the rate. For example a short-term note, less than five years, on an owner-occupied single-family residence would be a pretty safe investment and therefore would have the lowest rate of return.
In other words, the higher the risk, the higher the rate of return (interest) you need to be making on the note. So the safest loan will have the lowest rate of return, and the higher the risk the higher the rate of return.
On commercial properties a lot of lenders or investors can only go up to 50-60% loan-to-value.
Improved land would maybe be around 60%, and unimproved land as low as 50% or lower.
As you can see, the more risky the property the less someone is willing to lend on that property and consequently the higher the rate of return they would want.
I'm sure you get the picture. As in any investment, if there is a high degree of safety, like a savings account, you get a low rate of return. If you are willing to take more risk you will get a higher return on your money, like in mutual funds or the stock market.
So here are the different kinds of properties in order of safety, with the safest being in the first position.
Owner-occupied single-family residence
Non owner-occupied single family residence (rental)
Duplex
Four-plex
Multiunit apartment building
Commercial property
Improved land (all utilities and streets in place)
Un-improved land or raw land (no utilities)
So the loan-to-value ratio is a very important concept. One of the first things that you need to establish when you talk to a potential seller is the loan-to-value ratio. It's a simple calculation that you can do in your head or on any calculator.
Remember...
"You Don't Have To Get It Perfect... You Just Have To Get It going!"
Article by Theodore Hansson of Theodore Hansson Co. Theodore has helped hundreds of ordinary people succeed in their own home-based business, brokering mortgage paper. Visit him at http://www.thansson.com/ordersecure.htm for FREE "how-to" information as well as a free subscription to his newsletter "Paper Profits & Extra Cash".
Reprinted from Zongoo.com Daily Press & Consumer Information
While in the process of "getting started" it's important to remember that just plain "getting started" is the first goal. Don't get bogged down in a lot of details.
I'll begin with some mortgage terms etc. so you'll get an understanding of the business and you'll be able to speak the "lingo".
If this at first seems a little dry, please bear with me because it's important that you understand the terms involved.
But The Good News Is...
that in order for you to make money it's not necessary for you to understand everything!
So Don't Get Bogged Down!
What is important, however, is...
A Desire To Get Going, To Locate The People Who Have Mortgage Notes They Want To Sell... And To Turn That Information Into Money!
Synonymous Terms Just what is a "Mortgage", (or a "Deed of Trust" which it may be called in some states)?
Some states use the term "Mortgage" while others use "Deed of Trust". Basically the terms are synonymous.
Mortgage In a mortgage state you have two parties involved, a "Mortgagor" and a "Mortgagee".
The easiest way to remember which is which is to think that it's the person who lives in the house behind the door, who's making the monthly mortgage payment i.e. the "or" in "door", who is the mortgagor.
The mortgagee who receives the payment is usually a Commercial Lender, a Bank, Savings & Loan, or Mortgage Co. But a lot of times the mortgagee is an individual.
So, the mortgagor is the borrower and the mortgagee is the lender.
A mortgage is recorded at the county courthouse.
Deed of Trust A Deed of Trust is a little different than a Mortgage, but basically the same thing. In a Deed of Trust there are three parties involved whereas a Mortgage only has two.
A Deed of Trust has a "Trustor", a "Trustee", and a "Beneficiary". In this case it's the trustor who lives behind the door who makes the payments to the beneficiary. The trustee in the middle is usually an attorney or a title company.
The trustee basically insures that as long as the trustor is making the payments to the beneficiary, no one can come in and take the house away from him.
So, the beneficiary is the lender, who can be a Commercial Lender, Savings & Loan, an individual or whatever. The trustor is the borrower and the trustee is the middleman, usually an attorney or a title company. A deed of trust is also recorded at the county courthouse.
The mortgage or deed of trust is the document that creates a lien on a property or conveys a property to the mortgagee or the beneficiary as security for the debt.
For simplicity, let's use the term "Mortgage" from now on.
You can have a first mortgage, a second mortgage, a third mortgage etc. The position of the mortgage determines who is first in line, who is second in line and so on. For example in a foreclosure a first mortgage is more secure than a second mortgage and a second mortgage is more secure that a third mortgage and so forth.
Promissory Note A mortgage and a deed of trust always goes together with a "Promissory Note", usually called a "Note". Again, to make it as simple as we can let's just call it a "Note".
The note is the document stating a promise to pay the debt, the actual promise that someone makes to pay a certain amount of money at a certain interest rate over a certain period of time.
This debt is in certain definite installments. In other words, if there's $100,000 owed on a property, then there would be a mortgage and a note. The note would explain exactly how this $100,000 was to be repaid.
For example on a $100,000 note it could say that the borrower promises to pay $877.57 every month, at 10% interest for the next 30 years or until the note is paid in full.
The note is what we're interested in and that's what I'm going to explain in my manual how to buy, how to sell, and how in doing so you make a lot of money.
That's what we are in the business of.
We Don't Buy Or Sell Real Estate... We Buy & Sell Paper!
Actually we buy and sell monthly payment streams.
The only time real estate has anything to do with this is when it's the collateral or security for the note.
The note however is usually not recorded at the courthouse. It's considered a private document between the lender and the borrower and need not be recorded.
Please stay with me a couple of more minutes for a few other terms you should be familiar with.
After this it's all downhill, as explained exactly in the manual how we can make some good money in this exciting business.
Different Kinds Of Real Estate The real estate that is the security for the note can be an owner-occupied single-family residence, a rental, a duplex, a multi-unit apartment complex, a hotel, a 7-Eleven store, a vineyard in California, a gas station, a body shop, a mobile home (if the land goes with the mobile home), raw land or any other form of real estate.
Assignment Of A Mortgage If you buy a mortgage/note from someone, that person will transfer or assign it to you. Consequently if you sell a mortgage/note to an investor, you will execute an "Assignment of Mortgage" to the investor. An assignment simply means a transfer. This is a legal document that's also recorded in the county courthouse.
Purchase Money Mortgage Another term that is sometimes used is "Purchase Money Mortgage". It's a term that's used when the seller acts as the bank and lends the money in order to facilitate the sale of his house.
A purchase money mortgage or a seller financed mortgage is what you're going to be looking for when you look for someone who personally holds a mortgage.
Estoppel Certificate I don't want us to get bogged down in legal terms all day, but one thing that's very important when you get into this, is what's called an "Estoppel Certificate".
This is a legal document from the mortgagee and/or mortgagor stating the exact balance due on the loan at a certain point in time. For example when someone wants to check the balance, the monthly payment amount and the interest rate on a loan.
In other words, it's a legal document that states how much is owed from either the mortgagee's point or the mortgagor's point of view.
Loan-To-Value Ratio The "Loan-to-Value" ratio is very important. It's simply a ratio that tells us the percentage of the loan compared to the value of the property. It's a good indication of exactly what we are buying.
For example, look at all the loans on the property: the first mortgage, second mortgage, third mortgage, and so on and add them all up and divide then by the value of the property. This gives you the loan-to-value ratio.
For example if something is 100 percent loan-to-value, it means that the amount of loans on the property equals the value of the property. So if the property is worth $100,000, there would be $100,000 worth of loans on the property.
If the loan to value on a property is only 75 percent, it simply means that if a property is valued at $100,000, there's $75,000 in loans on the property.
Now, different investors work loan-to-values in different ways. There are all sorts of loan-to-value restrictions that you will have to work with when you get into paper.
For example, some investors may lend up to 80 percent of the loan-to-value on an owner-occupied single-family residence, because this is the safest, type of mortgage that you can buy.
Why?
That's because an owner living in his house is not likely to walk away from his own home if he runs into financial difficulties! Especially, if he has some equity in his property.
So a loan on an owner-occupied single-family residence is the safest loan that can be made, and to invest in.
That's why banks and financial institutions will lend more on owner-occupied properties. For example, I believe the FHA (Federal Housing Administration, a Government agency that guarantees bank loans) guidelines are that they will lend up to 95 percent of a home's value if it's owner-occupied versus 85 percent if non-owner occupied (a rental).
Why would they do that? Simply because it's a safer loan.
If you have an owner-occupied single-family residence, the loan-to-value ratio may be 85% versus a 75% loan-to-value ratio for an non-owner occupied property.
Equity This is simply the owners money part in the property. For example if your house is worth $100,000 and you have a loan and owe the bank $75,000, it means that you have an equity in your property of $25,000 or 25%.
Rate Of Return The "Rate of Return" is simply the percentage of interest earned on an investment. Of course the investment we're talking about here is "Mortgage Paper".
For example, if you are currently paying 8% on your own mortgage to a bank, then the bank is getting an 8% rate of return on their money (the money you borrowed from them to buy your home). Get the picture?
Also, the shorter the term on the mortgage, the lower the rate. For example a short-term note, less than five years, on an owner-occupied single-family residence would be a pretty safe investment and therefore would have the lowest rate of return.
In other words, the higher the risk, the higher the rate of return (interest) you need to be making on the note. So the safest loan will have the lowest rate of return, and the higher the risk the higher the rate of return.
On commercial properties a lot of lenders or investors can only go up to 50-60% loan-to-value.
Improved land would maybe be around 60%, and unimproved land as low as 50% or lower.
As you can see, the more risky the property the less someone is willing to lend on that property and consequently the higher the rate of return they would want.
I'm sure you get the picture. As in any investment, if there is a high degree of safety, like a savings account, you get a low rate of return. If you are willing to take more risk you will get a higher return on your money, like in mutual funds or the stock market.
So here are the different kinds of properties in order of safety, with the safest being in the first position.
Owner-occupied single-family residence
Non owner-occupied single family residence (rental)
Duplex
Four-plex
Multiunit apartment building
Commercial property
Improved land (all utilities and streets in place)
Un-improved land or raw land (no utilities)
So the loan-to-value ratio is a very important concept. One of the first things that you need to establish when you talk to a potential seller is the loan-to-value ratio. It's a simple calculation that you can do in your head or on any calculator.
Remember...
"You Don't Have To Get It Perfect... You Just Have To Get It going!"
Article by Theodore Hansson of Theodore Hansson Co. Theodore has helped hundreds of ordinary people succeed in their own home-based business, brokering mortgage paper. Visit him at http://www.thansson.com/ordersecure.htm for FREE "how-to" information as well as a free subscription to his newsletter "Paper Profits & Extra Cash".
Reprinted from Zongoo.com Daily Press & Consumer Information
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