Private Mortgages

A private mortgage is a real estate note, or mortgage, that is held by a private individual or Trust, as opposed to a traditional lending institution.  These mortgages are frequently offered by homeowners when traditional interest rates are higher or mortgage qualifications are tougher, as fewer potential purchasers can qualify for traditional mortgages.  In this way, the homeowner increases the number of potential purchasers for their home.

This private mortgage or note is sellable on the secondary market, at a discount.  An investor will purchase all or part of the remaining payments for slightly less than the “face value” of those total payments.  The original noteholder “wins” because he is getting a lump sum of cash, now, rather than waiting to receive monthly payments.  The investor “wins” because he is purchasing, at a discount, a regular cash flow, backed by a first position in real estate.   

Look for privately held notes that have at least two years history of payments being made on time.  Also look for healthy down payments and for higher interest rates, as these factors make the note more valuable to the investor. 

Here is an example:  John and Jane are ready to sell their starter home.   They have already qualified for a mortgage on their new home.  Bank qualifications are fairly strict at this time, so they offer to “hold” the mortgage (or “take back” the mortgage) on the home they are selling.  This increases the number of potential purchasers, as someone who doesn’t meet the bank’s strict qualifications could still be a good purchaser of this home. John and Jane also enjoy a tax benefit: they will pay taxes only on the payments they actually receive each year.  Since their income is fairly high at this time, this is good for them.  Years go by, and the purchaser of the starter home has been making timely payments.  John and Jane decide they need a lump of cash to pay for their son’s college tuition.  An investor purchases the remaining payments at a discounted price.  The original purchaser will now be sending their payment to the investor, not to John and Jane.

Contact: Marilyn Singer at or at 716-570-6361.

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