Your 5 Best Sources for Buying Mortgage Notes

Success in note investing requires a variety of factors including finding a consistent flow of mortgage note investments to choose from. An established sellers list is every bit as crucial for buying mortgage notes as reliable funding is.

What type of mortgage notes do you want to invest in?

Before you begin reaching out to note sellers, you need to decide what type of mortgage notes you want to invest in. Your investment options include:

  • First lien or second lien mortgages
  • Institutional or private loans (seller financed or owner financed)
  • Residential or commercial loans
  • Performing or non-performing loans

The type of mortgage notes you want to invest in will determine which source(s) you should contact to find those mortgages. For example, if you want to invest in institutional commercial loans, you will be wasting your time looking for them on a residential mortgage online exchange.  

Additionally, communications with your sellers will depend on which source you are reaching out to. Negotiating a $3 million deal with a large bank is very different than discussing a $25,000 loan from a “mom and pop” investor. Always keep in mind who you are as an investor, what you are trying to accomplish with note investing, and which sources may be best for buying mortgage notes for your portfolio.

Sources for buying mortgage notes

Whether your a small note investor looking to purchase a few deals a year, a larger investor ready to buy millions of dollars worth of notes at a time, or looking to grow a note wholesale or broker business, below are the five of the best sources for finding mortgage notes to purchase.

  1. Lending institutions
  2. Hedge funds
  3. Private sellers
  4. Online marketplace
  5. Servicing companies

Lending institutions

Banks, credit unions and other lending institutions seem like the most obvious source for buying mortgage notes. However, buying directly from a bank is actually much harder than most people think. 

Most large lending institutions (like Wells Fargo, Chase or Bank of America) do not sell loans to small investors as it is simply not worth their time or effort. Instead, they package millions of dollars worth of loans together into a “pool” and sell to institutional investors. Smaller investors will have much more success buying mortgage notes from smaller regional or community banks in your target markets.

Not all banks sell mortgage loans and those that do, choose the loans they will sell based on their portfolio analysis. It is highly unlikely that any bank would ever be willing to sell a specific loan because you are interested in a particular house.

Hedge funds

Hedge funds are currently one of the most common note sources for smaller investors buying mortgage notes. Hedge funds buy institutional loans from larger lenders and private investment firms. They are able to make these large purchases because they combine the resources from multiple large investors. These large trades require the buyer to purchase the entire pool so hedge funds often have to purchase mortgages that don’t meet their investment preferences. When that happens, they sell these loans off to smaller investors in the secondary market.

Private Sellers

Investors can also buying mortgage notes from “mom and pop” sellers or private note owners. Many property owners create notes when they sell their home or investment property with owner or seller financing. The easiest way to reach private note sellers is through targeted direct mail or online marketing campaigns.

Online marketplace

There are many online marketplaces that facilitate buying mortgage notes from private individuals. This is by far the easiest starting place for note investing to both find investments and gain insight into what is really happening in the market.

Servicing companies

Servicing companies are the licensed debt collectors that will help you manage your note investments. They keep track of all of the mortgage payments, expenses, arrearages, late fees, accrued interest, and escrow payments. Many are also the borrowers’ primary contact for any questions or requests. Mortgage notes are often bought and sold through servicers because of their business relationships with both buyers and sellers. Not all servicers provide this service but it is worth checking out. If you are having trouble selecting a servicer for your mortgage investments, choosing one that may be able to help you buy or sell more notes in the future might be a good idea.

Want to learn more about note investing?

If you are serious about creating your sellers list, you have to be prepared to close a deal when you reach out. That means you should already know:

  • Which type of mortgage notes you want to invest in,
  • How to separate the good notes from the bad,
  • How to price your offer; and
  • How you are going to fund the deals you win. 

After all, if you don’t have the knowledge or funds to help see the transaction through, you will waste everyone’s time and ruin a potentially valuable relationship. If you’re interested in learning how to invest and profit by creating, buying, and selling mortgage notes regardless of the economic climate, visit our website, where we show you how you can become a note investor through our online note investing education program, Note Investing Academy.