The Quick Read: A super jumbo DSCR lender treats a seller-carried note as a second lien. The lender then adds it to combined leverage, checks its payment and paper trail, and tests whether the rent still covers the full obligation. Whether the note is allowed at all depends on the program, the loan size, and the first lender’s documents, all subject to underwriting.
- Lien position: the seller note is junior to the new first loan, and many first-lien programs want to be the only lien.
- Leverage: where every lien counts toward the cap, a carryback eats room dollar for dollar.
- Coverage: some programs include the seller payment in the ratio and others handle it differently.
- Paper trail: the note, the recorded instrument, and any subordination agreement all need to be clean.
- Size: at super jumbo balances, the leverage ladder is tighter, so a carryback does more damage.
Picture an investor buying a high-balance rental where the seller offers to carry part of the price. It sounds like free equity. A lender sees something different: a second claim on the same property, with its own payment and its own exit. This guide walks through how that review actually runs and where the general rule breaks.
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For the full picture of how these loans work, see Lendmire’s complete DSCR loans guide.
Key Terms Defined
Seller-carried note: a loan the seller makes to the buyer for part or all of the price, secured by the property. It is also called a carryback or purchase-money note.
Subordination: a written agreement that puts one lien behind another in payment priority.
Combined leverage (CLTV): the total of all liens divided by the property value. A seller second counts in it.
Balloon: a lump-sum payment due at the end of a note’s term, after smaller payments that did not pay it off.
Payoff letter: the holder’s statement of what it takes to clear a lien at closing.
DSCR: debt service coverage ratio, meaning the property’s rent measured against its full monthly obligation.
Super jumbo: a lender-defined tier, not an official one. In this program ladder it means loans above $3,000,000, where the standard program stops.
How Does a Lender Treat a Seller-Carried Note?
A seller-carried note that is recorded against the property is a second lien, and a first-lien DSCR lender reads it that way. It ranks behind the new first loan. If the property goes into default, the bank is paid first.
A broker explainer from Brevitas makes the same point. It adds that some first-lien lenders prohibit secondary financing without permission, and that an intercreditor agreement may be needed.
That matches what we see across the wholesale network. Treatment is program-specific. A few lenders in the network allow a subordinate seller second under set limits. Many first-lien programs want to be the only lien. Nobody can give you a universal answer, which is why you ask before you sign a purchase contract with a carryback in it.
The Reading Order, Step by Step
An underwriter works through a seller-note file in a fairly consistent sequence. Each step can end the conversation.
1. Identify the structure. The seller can carry a junior second behind a new DSCR first. The seller can carry the whole balance in an all-inclusive note. Or the deal can be a land contract. Amerinote lists junior mortgage, all-inclusive mortgage, and land contract as the main types. In a land contract the seller keeps legal title until the price is paid. That means no deed and no first lien for the new lender to take.
2. Pull the documents. The lender wants the promissory note, the recorded security instrument, and any riders.
3. Run title. The title company pulls payoffs for every recorded lien. It also checks any subordination agreement, which needs specific identification of both liens, recording data, and a legal description, per Blue Notary.
4. Check the seller’s own mortgage. If the seller still owes a bank, the due-on-sale clause matters. Federal law defines that clause at 12 U.S.C. § 1701j-3. A wrap-around note muddies the first lender’s position, so lenders usually expect the seller’s loan to be paid off at closing.
5. Test combined leverage. Total liens, including the seller note, must fit the program cap. This is the usual deal-breaker.
6. Test coverage. The rent is measured against the full obligation. Some programs may leave a seller second’s payment out of the ratio, and others may include it. Ask which way your lender goes before you build the deal around it.
7. Plan the exit. On a later refinance, the new first lender will want the note paid off or formally subordinated.
Which Seller Deal Do You Have?
The structure decides what the lender needs. The table sorts the common ones.
| Structure | Who holds title | What the lender needs | Usual snag |
|---|---|---|---|
| Recorded second | Buyer | Note, recorded instrument | Combined leverage |
| Unrecorded note | Buyer | Disclosure, proof of terms | Hidden lien risk |
| Land contract | Seller | Often a different loan type | No deed to lien |
| All-inclusive note | Buyer | Seller’s loan paid off | Due-on-sale clause |
An unrecorded note deserves special attention. A lender that finds an undisclosed second at title will usually stop the file. Disclose everything up front.
What Each Note Term Tells the Lender
Underwriters read the note’s terms as risk signals, not just numbers.
- A balloon tells the lender a refinance event is coming. A short balloon near the new loan’s start can trap the borrower.
- An interest-only period on the seller note keeps the payment low, which can flatter coverage. Lenders look at what happens when it ends.
- A very low payment or off-market interest can look like a sales concession. For contrast, agency guidelines treat that kind of seller financing as a concession. DSCR programs may treat it differently.
- A short maturity raises the odds the note will need refinancing during the new first loan’s term.
- A personal guaranty from the buyer on the seller note adds a liability the lender may want to see.
Bring the full note, not a summary. Underwriters do not rely on a term sheet.
Keep It, Pay It Off, or Subordinate It
You have three outcomes, and each needs different paper.
| Path | What the lender needs | Main risk |
|---|---|---|
| Keep it in place | Program allows a second; written subordination | Holder may refuse |
| Pay it off at closing | Payoff letter and release | Cash needed at closing |
| Subordinate it | Signed agreement naming both liens | Seller cooperation |
Subordination is the hard one. The note holder has no duty to sign, and Amerisave’s glossary says plainly that the holder can refuse. Getting the seller to agree to subordination in writing, up front, makes the later refinance much easier. For contrast only, even the agency world requires evidence of subordination that stays in place on a refinance. DSCR is not an agency product, but the logic is similar.
What Changes at Super Jumbo Size
Size is what makes this subject tricky. Our programs run from $150,000 to $10,000,000 through select wholesale programs, subject to underwriting. The standard program stops at $3,000,000. Leverage steps down as the balance climbs.
| Loan band | Purchase | Cash-out |
|---|---|---|
| $150K–$1M | 80% | 75% |
| $1M–$1.5M | 75% | 70% |
| $1.5M–$2M | 75% | 60% |
| $2M–$3M | 75% | 60% |
| $3M–$4M | 65% | — |
| $4M–$6M | 60%, on review | — |
| $6M–$10M | 60%, on review | — |
These are ceilings at coverage of 1.00 or higher, and every request is subject to underwriting. Each band’s top leverage needs a stronger score: 660 or better at the first band, 700 or better from $1,000,000, and 720 or better from $1,500,000 to $3,000,000. Above $3,000,000, the program floor is 700, and a lower score takes a lower leverage cell. Above $4,000,000, every file is reviewed case by case before submission, purchase or rate-and-term only.
Do the math on the loan, not the price. Multiply the price by your leverage first, then read the band that loan falls into. Then add the seller note and see what combined leverage does. A carryback that fits comfortably under a small-balance cap can push a big file past a tighter one.
Other overlays hit larger files too. Two appraisals are required above $2,000,000. Reserves are typically six months on the subject property, and twelve for first-time investors. Above $3,000,000, the file also needs a 0x30x24 housing history, 48-month event seasoning, and no rural property. At that size, only citizens and permanent residents are eligible.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
A Worked Example
Run the numbers on a hypothetical $4,000,000 rental purchase, with modeled assumptions only. A buyer wants 60% on the first lien, which would sit in the $1.5M–$3M band at the first-lien level and stay under the program’s tighter caps. The seller offers to carry another slice behind it.
Without the seller note, the first lien alone leaves the buyer funding the remaining equity in cash. With a seller second, combined leverage rises above 60%. If the lender caps combined leverage at the first lien’s ceiling, the file fails. If it treats the seller second as separate from the cap, which only some programs do, the file may pass.
Now coverage. Assume rent covers the first-lien payment at roughly 1.15x. If the program counts the seller payment, coverage may fall toward or below 1.00x. Below 1.00x, a few lenders in the network offer programs from 0.75 to 0.99, but leverage and terms adjust, subject to underwriting. The figures here are illustrative, not a quote.
Proving Payment History and Seasoning
A seller note rarely shows on a credit report. The lender still wants proof you pay it. Bring bank statements showing payments, a payment ledger signed by the holder, and a copy of the recorded note. If you are refinancing out of a note, this is a different file: a cash-out or rate-and-term payoff. The new lender checks ownership history and a clean first-lien position, and the payoff must fit under the cap.
Interest-only terms add a wrinkle. Our network offers up to 120 months of interest-only on 30- and 40-year terms, to 75% leverage, qualified on interest, taxes and insurance. A seller note can sit alongside that, but the lender still adds it to combined leverage. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Entity and Guarantor Questions
Entity vesting is welcome in the network, with no layered entities, subject to lender program eligibility. An LLC buyer changes who holds title and who guarantees the loan. Moving an existing property into an LLC can also count as a transfer under a seller’s due-on-sale clause, per Fedlaws. Federal protections for residential transfers cover only properties of fewer than five units, so larger ones follow the contract.
Where the General Rule Breaks
- No existing loan. If the seller owns the property free and clear, the transaction is cleaner. There is no due-on-sale problem to manage.
- Land contracts. Because the seller keeps title, the buyer may need a different financing path entirely.
- Seller-side rules. Federal loan originator rules limit who can carry a note and on what terms. NAR notes an exclusion for sellers who finance three or fewer properties in a year. Whether a given sale falls inside the rules is a question for counsel, not a lender.
- State variation. Some states add notice rules when an existing lien stays in place. One example from a Texas law firm is a seven-day notice period. It is an example of variation, not a map.
Common Mistakes
- Signing a contract with a carryback before asking the lender if it is allowed.
- Leaving a second off the application and letting title discover it.
- Accepting a balloon that falls due soon after closing.
- Assuming the seller will happily subordinate later.
- Believing the coverage ratio reflects true cash flow. It counts rent against the payment only, not repairs, vacancy, or management.
What to Gather Before You Apply
- The signed purchase contract and any seller-financing addendum.
- The draft note, security instrument, and any riders.
- The seller’s current mortgage statement, if any.
- Written seller agreement to subordinate or pay off.
- Entity documents, if the buyer is an LLC.
- Reserve statements, with cash-out proceeds never counting toward reserves.
Frequently Asked Questions
Can a seller note sit behind a super jumbo DSCR loan?
Sometimes. Some programs in the network allow it under set limits, and others want to be the only lien. Combined leverage must still fit the cap, subject to underwriting.
Does the seller payment count in coverage?
It depends on the program. Some include it in the full monthly obligation, and some may not. Ask before you structure the deal.
Must I tell the first lender?
Yes. A recorded second appears at title anyway, and an undisclosed lien can stop a file. Disclose everything up front.
What if the seller won’t sign a subordination?
The holder has no duty to sign, so the note may need to be paid off at closing instead. Plan the cash for that, or negotiate the agreement before signing the contract.
Does super jumbo size change any of this?
Yes. Leverage caps tighten as the balance climbs, so a carryback uses up a bigger share of room. Above $4,000,000 every file is reviewed case by case.
Next Step
If you are buying or refinancing a high-balance rental property and want to see how the numbers work, Lendmire can help you compare super jumbo DSCR loan options based on the property income, the loan balance, credit profile, leverage, and investor goals. Lendmire is a broker arranging business-purpose financing through select lenders in 41 markets, including Washington, D.C. Nothing here is a commitment to lend, and tax treatment varies, so consult a qualified professional.
Lendmire’s self-employed mortgages page presents both super jumbo programs, bank statement and DSCR, side by side.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 41 markets, including Washington, D.C. DSCR loans are evaluated by the lender on property cash flow rather than personal income, subject to lender guidelines, supporting LLC closings and accommodating investors with four or more financed properties. Scotsman Guide Top Mortgage Workplace in both 2025 and 2026.
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References
1. Brevitas, Navigating Seller Financing
2. Amerinote Exchange, Seller Carry Back
3. Blue Notary, Subordination Agreements
4. Cornell LII, 12 U.S.C. § 1701j-3
5. Amerisave Glossary, Subordination Agreement
7. Fedlaws, Garn-St Germain exceptions
9. Lone Star Land Law, Texas seller finance
This article is part of Lendmire’s super jumbo DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Plan a Sale Inside a Ten-Year Super Jumbo DSCR Note · How a Super Jumbo DSCR Lender Treats a Sale Inside a Ten-Year Note · One Note vs Eight Super Jumbo DSCR Loans on Luxury Houses
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.