Mortgage Note Investing 101: Getting Started

mortgage notes

Mortgage Note Investing 101

Mortgage Note investing

With all the entrepreneurship taking place in today’s real estate markets, people are seeing a huge spike within the mortgage note space. You must be thinking to yourself, what is a mortgage note, and why is there so much hype around being a mortgage note investor? 

People who have been investing in real estate have probably heard of the term mortgage note being thrown around. What some of these real estate investors may not know is that you can own a mortgage note yourself and profit monthly from being a mortgage note holder.

What is the difference between a note and a mortgage? 

A note is simply a promise to pay your debt on your house. When any type of real estate is being sold, buyers will come across a promissory note, which defines the terms and agreement of the loan. The note will include the loan amount, percentage rate, the payment amount, and the timing of payment. In layman’s term it is an IOU that contains the promise to repay the loan. The note is then secured through a security instrument called a mortgage or deed of trust. The Security instrument now ties the note to the deed as a lien on the property as collateral.  

To simplify even further what a mortgage note is, we will be using an example to explain it. Let’s say you recently purchased a home, and you put down 20% and wanted to borrow 80% from a lender. That lender you are borrowing the 80% from is now considered your mortgage holder.  When reading your mortgage document you can see that the lender has the right to sell your mortgage to another lender. The new lender would be considered a mortgage note investor.  

If you have ever owned any type of property you may have already experienced a change in the mortgage lender. Some property owners may get a letter from your lender saying that from here on out you will be making your mortgage payments to another mortgage lender. This is due to your mortgage note being sold off to a new lender.

How do I get into the mortgage note game? 

So now that we have covered what a mortgage note is, let’s talk about how to invest in a mortgage note. You’re probably thinking to yourself  “how would I be able to buy a mortgage worth over $100,000”. The good news is, for those who are trying to get into the mortgage note space is that there are over millions of mortgages that are less than $50,000 in the United States. These Mortgages can be purchased at a discount, and give you instant equity! 

Mortgage notes are usually sold by banks and other lenders. For more information on how to purchase a mortgage notes for sale either check out our Note Investing Buyer’s Journey or jump right in and register to for the JKP Training Series Note Investing 101.  JKP also offers Note Investing consultation

How does the discount work?

Let’s say a homeowner owes $40,000 on their mortgage, which would be their balance. If the lender decides to sell the note to a different lender, the new lender doesn’t have to pay $40,000 they may only pay $35,000 for the note, leaving the new lender with $5,000 in equity. The homeowners still have the mortgage of $40,000 even after the note has been sold. This provides the new investor a higher effective yield, than the interest rate of the note. This can lead to above average return on the note.

Where can I learn more about investing in mortgage notes? 

JKP Holdings purchases seller financed, land contracts and bank originated mortgages nationwide. For new Investors, sign up for our Note Investing Training.  For more personalized questions we offer consultation calls that can help new and old investors with their mortgage notes. Schedule a call through our website today and get in touch with our team to help you buy, sell, or consult on your mortgage note investing.

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