The U.S. and its citizens have huge issues with debt that are only getting worse. The country’s national debt is at its highest point ever, with the interest on that debt being the fastest growing part. The national debt as a percent of GDP (representing the size of our economy) is near historic highs, and close to what we had at the end of WW II. About $2000 of the average taxpayer’s taxes will go to covering interest on the nation’s debt in 2019.
For U.S. households, the picture isn’t much better. Student loan debt almost tripled to $1.46 trillion from the time of the financial crisis to the end of 2018. Auto debt went up $50 billion from 2017 to 2018, and auto delinquency rates are at a 19-year high. Credit card debt increased 5% from the end of 2017 to the end of 2018. Forbes recently reported that 28% of workers making $50,000 to $99,999 usually or always live paycheck to paycheck.
On The Real Estate Side
Meanwhile, it is getting harder to get a loan on properties with values below $150,000. According to The Wall Street Journal, from 2009 to 2018, lenders extended mortgages on 38% fewer properties with balances of $10,000-$70,000, and 26% fewer for mortgages between $70,000 and $150,000. Only about a quarter of homes that sold for less than $70,000 were financed with a mortgage. The challenge is that lenders make far less money on small loans than on larger loans, so they naturally follow the money.
One solution for some real estate transactions is to use owner financing. The buyer of the property signs a promissory note stating that they will make payments to the property seller at a specified interest rate and term. This is a win-win, as the buyer is able to purchase the property, the seller collects payments with interest, and they both avoid many of the bank fees, paperwork, and delays. It is critically important to make sure that the correct paperwork is prepared, so it is always best to use the services of a title company or an attorney.
Helping The Note Holder
The person who sold the property has the option of collecting the monthly payments until the note is paid off or selling the remaining payments for a lump sum of cash. For the latter option, the note holder would contact a credible note buyer like MortgageNoteUSA.com. The note buyer would normally offer a price for the note and take care of all of the due diligence process. The note holder (seller) could even decide to only sell some of the payments instead of all of them. This way, he or she can keep part of the note and possibly defer tax gains.
While owner financing and carrying a mortgage note certainly won’t cure all of the nation’s debt ills, it is at least a useful tool that can help some of the people. Using owner financing to create a mortgage note and then selling that note has been a common practice for decades. It is a tool that more people in and out of real estate should become familiar with.