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Even with Owner Financing, Low Credit Scores Will Wipe Out Opportunities

February 23rd, 2010 by Dawn Rickabaugh

I’m just about to close a note deal where the Buyer’s / Payor’s credit score is below 600.    Ouch.  Why can I even work with this?  (Normally this would be a note I couldn’t even consider buying).

Because there was a 10% down payment, there is almost 3 years of seasoning (the buyer has been making monthly payments for almost 3 years), and we’re only buying a partial (only the next 60 payments), which keeps the risk acceptably low.

What if the Payors had credit scores over 700?  Ka-ching . . .

The note holder / seller would be walking away with several thousand dollars more if they had been helping their Payors improve their credit scores over the last several months before trying to sell their note.

The note I am buying / brokering is secured by a property in Alaska, but the principles apply anywhere.

Lots of people have credit scores that have really taken a beating over the last couple of years.  That won’t stop them from buying property with owner financing, but with better credit scores, they could greatly expand their opportunities for buying because prospective sellers would have notes they would feel good about holding or selling.

In fact, here in our local market, I could buy a properly structured note without any seasoning, meaning I could buy it for a reasonable discount right after it was created if I was involved in underwriting the transaction (putting the deal together) right from the start.

The whole credit scoring system is a just a game, but if you don’t know the rules, you can’t possibly hope to win, and it will cost you a lot of money and lost opportunities whether you’re a buyer, or a note holder.

I’ve recently become friends with a guy who is making a profound difference by helping people quickly and dramatically improve their credit scores, even if they have foreclosures, short sales or bankruptcies on their record.

His name is Phil Tirone, and I’ve asked him to be a guest on my blog at http://notequeen.com.  He’ll be sharing the ‘right’ way to do credit repair.  A lot of credit repair companies inadvertently do their clients damage because they don’t really understand the nuances involved.

We all need to know how to get and keep the highest credit score possible, it can save us thousands, but if you fit in any of these categories, you really need to pay attention to his message:

* buyers (even if you’re buying with seller financing, a higher credit score will dramatically increase the numbers and types of properties you can buy)
* sellers who are thinking of carrying paper for a buyer(s) with poor credit
* note holders who are preparing to sell all or part of their note

In the meantime, feel free to check him out at 7 Steps to a 720 Credit Score.  He’s written a book you’ll really want to get ahold of, and you can learn more at http://www.7stepsto720.com

Always consult with your CPA, tax attorney and/or financial advisor before selling property or paper.

Dawn Rickabaugh is a RE Broker, Owner Financing Coach and Note Buyer.  www.NoteQueen.com  626.292.1875

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