– Creating Notes

key factors to maximize the value of your seller-financed mortgage note when selling it:

Top Factors Affecting Note Value:

• Buyer Creditworthiness

  • Strong credit scores increase note value (get reports for all signers)

  • Spousal income/credit should be included

  • Poor credit makes notes nearly unsellable

• Property Valuation & Equity

  • Maintain ≤75% combined Loan-to-Value ratio (including any 1st mortgage)

  • Obtain professional appraisal before note sale

  • Owner-occupied properties preferred

• Note Structure Terms

  • Competitive interest rate (not usurious)

  • Ideal term: 3-5 years with 30-year amortization

  • Avoid very short (under 1 year) or very long (30 year) balloons

• Risk Mitigation

  • Require significant down payment (minimum 10-15%)

  • Personal guarantees from LLC/corporate principals

  • Proper recording and legal documentation

• Payment History

  • Seasoned notes (12+ months of on-time payments) command premium prices

  • Maintain clear payment records (copied checks/bank statements)

• Position & Protections

• • First-position notes are most valuable

  • For 2nd mortgages:

    • Require proof of 1st mortgage payments

    • Cross-default clauses

    • Use title company for closing

Pro Tips:

• Institutional lenders often block secondary financing

• “Nothing down” deals are hardest to sell

• Consider splitting large notes into sellable (80% LTV) and risk portions

Best Practices:

1. Verify buyer credit upfront

2. Document everything professionally

3. Build equity cushion

4. Maintain clean payment records

5. Consult note buyers early about preferred terms

The more these boxes you check, the smaller your discount will be when selling the note. Institutional buyers typically pay the highest prices for notes meeting these criteria.