Here’s how to know if it’s a firm offer or just a soft quote when going to sell a private mortgage note.
A soft quote is an initial offer made by an investor without review of the buyer or payer’s credit. Credit plays a crucial role in pricing for both yield and investment to value (ITV) parameters on owner financed real notes. A quote without a credit review will likely be revised when credit is actually reviewed.
A soft quote is provided when only a Quote Request Worksheet is submitted without any supporting documentation. When there is no legal ability to pull credit and no indication of the payer’s credit status, the investor will often assume the best.
The quote will be “subject to review of credit – assumes good credit” or “assumes a credit score of 675 or higher.” This assumption will be incorrect and too high at least 80% of the time. That means there is a high likelihood the offer will go DOWN when credit is reviewed.
The best solution is to receive a firm offer by submitting sufficient documentation for the investor to pull and review credit on the payer. Each investor sets their individual criteria for the minimum documentation required to pull credit. Most will pull credit with either an authorization signed by the note holder or a copy of the note and mortgage. The copy of the Closing Statement is also useful.
A firm quote is still subject to the remainder of due diligence items but pricing should not change unless the property value comes in low or subsequent documentation does not support the information provided on the worksheet. A firm quote should indicate, “credit reviewed with pricing” and “subject to standard due diligence and underwriting review of documentation.”
Get It In Writing
Quotes are generally returned within 24-48 hours or the next business day. The quote should come back from the investor in writing via fax or e-mail and is normally good for 30 days.
If the quote has not been formally accepted within 30 days, it might be subject to change in the event the investor’s pricing model or cost of funds have altered. Some investors will require a new credit pull after a certain period of time (generally 60 days), which could also cause a pricing adjustment if credit has worsened resulting in a lower credit score.
By gathering accurate information and basic documentation upfront, note brokers and sellers can receive a firm offer.