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How To Create A Valuable Private Mortgage Note?
06/2-13 at 19.48 by: Bhavna Jhaveri

When the buyer is unable to secure conventional financial and the seller is willing to carry back a portion of the sales price of a property, a private mortgage note is created. Below are the basics of creating a secure and saleable seller financed mortgages and notes:


  • Sell the property to a buyer who will owner occupy the premises.
  • The buyer's lowest credit score should be greater than or equal to 580.
  • The property should not be sold to a relative or an acquaintance.
  • Sell the property utilizing an escrow or title company as a third party processor
  • It is very important to get a legitimate title policy and insurance that is equal in value to the sales price.
  • The mortgage (1st lien position) should not be more than 85% of the sales price.
  • This mortgage should be secured by a Mortgage Deed or Trust Deed on the property.
  • Ideally, the down payment should be greater than or equal to 15% of the sales price.
  • In the event that the buyer does not have cash to put down more than 10% and the property value is higher than expected, you have the option to carry back two notes: The first position note at 80% of the sales price and the 2nd position note at no greater than 10% of the sales price. This is referred to as a 80-10-10 arrangement (1st position note: 80%, 2nd position note: 10% and Cash: 10%.
  • The terms of the note should be clearly stated. A good note should contain the following:
    • The date when the transaction was executed
    • Full names and addresses of the buyer(s) and the seller(s)
    • Full address of the property in question
    • The first payment date of the mortgage note
    • The maturity date of the mortgage note
    • The term of the note. Typically, a note is amortized over a period of 30 years even if the actual term is less than that.
    • The interest rate applied to the note. Usually, the interest rate for seller financed notes is between 8-12%
    • Pre-payment penalty for the first five years
    • Monthly Principal and Interest payment on the note
    • Considerable and detailed provisions for late and default payments on the note
    • The total down payment paid by the buyer
    • The note should always be notarized and both the buyer and the seller should have an original copy
  • A detailed record of the note and each payment has to be kept. That could be done by saving a copy of the payment check showing the bank cancellation stamp and/or by having a separate bank account for the note.


Bhavna Jhaveri is a notes investor and has multiple years of experience in the real estate industry. Our private mortgage note buyers are always willing to give tips/advise on creating or selling a note.

©2013 NoteCountry.

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