The Quick Read: The lender treats a seller-carried note as a second loan stacked behind its own, and it tests that second loan before it agrees to anything. It checks that the note is real, recorded and junior. It reads the rate and the due date. It adds the seller’s payment to your debt ratio and the seller’s balance to your combined leverage. Some jumbo lanes allow a seller second, some stop leverage low enough to rule one out, and none of them take it on a handshake.
What a Seller-Carried Note Is
A seller-carried note is a loan from the person selling you the house. The seller agrees to be paid over time for part of the price. You sign a promissory note, which is the written promise to repay. Usually the seller also records a lien, which is a public claim against the property that secures the note.
Jumbo payment estimate
The starting figures are an example price in the jumbo range with ten percent down on a thirty-year fixed. Replace them with yours.
Editable benchmark: 7.40% as of October 15, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a jumbo loan quote.
Illustrative starting assumptions: a $1,000,000 price in the jumbo range, ten percent down on the top-leverage lane, a thirty-year fixed structure at the current Freddie Mac conforming benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conforming benchmark, a market reference and not a jumbo loan quote; jumbo rates are set by the lender and the lane at lock and differ from the conforming benchmark. An adjustable-rate scenario is shown at the benchmark for the whole term; the rate after the initial period is unknown. Reserve months and appraisal counts follow the lane sheet for the amount band; the automated finding may require more. Taxes, insurance and dues are editable estimates; closing costs are not included. On most lanes the conforming limit for the county decides whether a loan is jumbo at all; two lanes start at a stated dollar floor instead. Licensed in sixteen states for consumer mortgages.
On a jumbo purchase, the seller’s loan almost always sits behind the bank’s loan. That makes it a second lien, or junior lien. If you stop paying, the first lender gets paid first.
The word “note” gets used for two different situations, and a lender reads them differently:
- You owe the note. The seller finances part of your purchase. This is the main case here.
- You hold the note. You sold something earlier, the buyer pays you over time, and you want that income counted. This is covered near the end.
Key Takeaways
- A jumbo lender cares about four things: lien position, terms, combined leverage, and your debt ratio.
- A seller second does not replace the down payment. It adds to your total debt.
- Every term of the side deal goes to the lender and the appraiser. Hiding one is the fastest way to break a file.
- Jumbo rules vary by lender and program. Ask for the specific guidelines before you write the offer.
Why Jumbo Is Different
A jumbo loan is a mortgage above the conforming limit for your county. The limit is set each year and varies by area, so check the current figure for your county. Because the loan is above that line, the big government-backed buyers cannot purchase it. A private investor buys it instead, under that investor’s own written guidelines.
That is the key point for seller paper. No single rulebook governs every jumbo loan. Each lane has its own limits on second liens, leverage and documentation. Lendmire arranges jumbo loan programs through wholesale lenders, and the answer to a seller-note question can change from one lane to the next.
Here is the envelope those lanes work in. The headline lane uses a 660 decision score and leverage up to 90%. Several lanes reach 89.99% combined leverage, and the rest stop at 80%. Loans run up to $5,000,000 on the largest lanes. The ratio ceiling is 50% on the fixed lanes, 45% on the adjustable lanes and 43% on the interest-only lanes. Reserves are counted in months of the full payment and rise with the loan amount. Every figure is subject to lender guidelines and a full file review. None of it is a commitment to lend.
Across the programs Lendmire places files with, a seller second gets one of three answers. Some lanes bar it outright. Some allow it only with tighter combined leverage. Some treat it like any other second lien if the paperwork is clean. The only way to know is to ask the specific lane before you sign a contract.
The Public Benchmark Most Lenders Resemble
Jumbo lenders write their own rules, but they rarely invent them from scratch. The public benchmark is the Fannie Mae Selling Guide section on subordinate financing. It does not bind a jumbo loan. It does show what lenders generally look for, and many investor guidelines read like it.
That benchmark asks for a few things:
- A promissory note that documents the second loan.
- A recorded mortgage, deed of trust or similar security instrument.
- A clear statement that the second lien is junior to the first.
- Disclosure of the second lien and its repayment terms to the appraiser and any mortgage insurer.
Treat these as the minimum a jumbo underwriter will want to see. A specific investor may ask for more.
How the Lender Reads the Note, Step by Step
An underwriter works through a seller note in a predictable order. Knowing the order lets you prepare the paperwork before the file is opened.
1. The contract and the application. The seller financing must appear in the purchase contract and on your loan application. The underwriter reads the contract first. A side note that is not in the contract is a red flag.
2. Is it a real second lien? The lender wants a signed note and a recorded security instrument that is clearly behind the first mortgage. A verbal deal or an unsecured arrangement is not treated as acceptable second financing.
3. The rate and the due date. The lender reads the interest rate, the payment schedule, the maturity date and any balloon. A balloon is a large lump sum due at the end. A short maturity worries a first lender because it creates a refinance deadline.
4. The payment structure. Lenders usually look closely at payments that do not cover the interest, because the balance grows over time. Deferred or interest-only seller terms draw extra questions.
5. Combined leverage. The lender adds the first loan and the seller note, then divides by the value. That result is the combined loan-to-value, or CLTV. Each lane caps it, and a seller note does not let you skip the down payment.
6. Your debt ratio. The seller note’s payment goes into your debt-to-income ratio, alongside the first mortgage, taxes, insurance, association dues and your other debts. A second lien can push a household over the ceiling even when the first loan alone fits. The benchmark guide also says debts with many payments left generally count, as laid out in its section on monthly debt obligations.
7. The relationship check. The lender asks whether the seller is a stranger or a relative. A sale between relatives gets a harder look, because the price and the terms may not reflect a true arm’s-length deal.
What the Lender Looks At
| Note feature | Why it matters | How it may be read |
|---|---|---|
| Signed note | Proves the debt exists | Required before anything else |
| Recorded lien | Sets priority | Must sit behind the first loan |
| Low seller rate | May hide a price cut | Can be treated as a concession |
| Balloon due date | Creates a refinance deadline | Draws extra questions |
| Deferred payments | Balance can grow | Often restricted or declined |
| Related seller | Price may not be arm’s length | Closer review of the sale |
These reads are typical, not universal. Each lane applies its own guidelines.
A Worked Example in Percentages
Run the numbers on a purchase where the price is 100%. These are modeled assumptions, not market data, and the dollar price does not matter.
Say you put 20% down. The jumbo first loan covers 75%. The seller carries the last 5% as a second lien. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
- The first loan is 75% of the price.
- The seller note is 5% of the price.
- The combined leverage is 80% of the price.
That fits a lane capped at 80%. It would also fit the lanes that reach 89.99%, with room left over.
Now change one fact. Suppose the appraisal comes in 5% below the contract price. Lenders generally lend against the lower of price or value. The same two loans now equal about 84% of the appraised value (80 divided by 95). That is over the 80% cap. You would need more cash down, a smaller seller note or a lane that allows higher combined leverage. Lendmire’s piece on how a lender reads a luxury appraisal shows why large-balance appraisals get this much scrutiny.
Change a different fact. Suppose the seller charges a rate far below what a second mortgage normally costs. Under the public benchmark, a seller rate more than 2 percentage points below the standard second-mortgage rate is treated as a sales concession. The financed amount is then deducted from the sales price. In the example, the recognized price falls to 95% of the contract price. Your two loans again total about 84% of that lower base. A cheap seller rate looks like a gift, but it can shrink the loan you qualify for.
Seller Note, Seller Credit, Assumption and Wrap
People mix up several ways a seller can help. A lender reads each one differently.
| Structure | What it is | Typical lender read |
|---|---|---|
| Seller note | Seller lends part of the price | Second lien, counted in leverage and ratios |
| Seller credit | Seller lowers your cash at closing | Concession, capped by the lane |
| Assumption | You take over the seller’s loan | Depends on the existing loan’s terms |
| Wrap | One note wraps around an older loan | Complex, often not accepted on jumbo |
The seller credit is the simplest. It is not debt. The seller note is the most scrutinized because it adds debt and a lien. Ask which structure the lane accepts before you build the offer around it.
Where Files Break
Most seller-note problems are paperwork problems. These are the ones that cause the most trouble.
- An unrecorded lien. If the second is not on record, the lender cannot confirm priority.
- A short balloon. A due date soon after closing looks like a debt you cannot carry.
- Deferred interest. Terms that let the balance grow can be declined.
- A hidden side deal. Seller cash back or a private promise that the lender never saw can sink the file. It can also create legal trouble. Disclose everything.
- A related-party sale. Without support for the price, the sale may be treated as non-arm’s length.
- A seller who may need to be licensed. A seller who finances more than the federal exclusions allow can count as a loan originator. The CFPB’s loan originator compliance guide excludes a natural person, estate or trust financing one property in a 12-month period. It also excludes any seller financing three or fewer in that period. A title-industry summary of those exclusions adds that the three-property exclusion has stricter conditions on balloons and rate changes. It also notes that you stay a consumer even when the seller is excluded. The lender may ask how your seller qualifies, and a seller’s attorney should answer that.
When the Note Stays Through a Refinance
The note does not vanish when you refinance. You have two choices.
If the seller note stays in place, the seller must agree to stay behind the new first loan. That agreement is called a subordination. Without it, the new lender will not close.
If you pay the seller off, the classification matters. Under the public benchmark, paying off a purchase-money second with no cash out counts as a limited cash-out refinance. Paying off a second that did not fund the purchase counts as a cash-out refinance. The benchmark also says only purchase-money seconds may be paid off in a limited cash-out refinance. Cash-out on the headline jumbo lanes carries lower leverage than a purchase. A cash cap applies on two lanes.
A balloon turns this into a deadline. If the note is due in a few years, you will need a refinance or a payoff plan by then.
One related trap: a land contract, or “contract for deed,” is not the same as a seller-carried note. It is a different instrument with different rules. Do not assume a lender will treat it like a recorded second.
If You Hold the Note
Now flip the situation. Say you sold a property earlier, the buyer pays you monthly, and you want that income counted on your jumbo application. Lenders do not count it automatically.
The underwriter generally wants the signed note, proof that payments arrive on a regular basis and evidence the income will continue. The public benchmark’s other-income rules ask for history, amount, frequency, duration and current receipt. Jumbo lanes often apply their own continuance tests, and those can be stricter.
Where Occupancy Fits
This article covers the home you live in. A second home or investment property changes the leverage a lane allows, so tell the lender your occupancy up front.
Checklists by Role
Buyer
- Ask the lender whether the lane allows a seller second before you write the offer.
- Ask for the combined leverage cap and the ratio ceiling.
- Put every term of the seller note in the contract.
- Plan for reserves, which scale with the loan amount.
Seller
- Offer a written, recorded note that sits behind the first loan.
- Expect the lender to ask about your other seller-financed sales.
- Talk to a real estate attorney about licensing and recording.
Agent
- Get the lender’s guidelines before the contract is signed.
- Make sure the contract, the note and the loan application match.
- Flag any seller credit or cash back so the appraiser sees it.
What Changes the Answer
Four things move the outcome most: the lane’s cap on combined leverage, how far the seller’s rate sits from the market, how close the due date is, and where your ratio lands. A file that is thin on any one of these usually needs more cash or a different lane. Credit score matters too, since the headline lane uses a 660 decision score.
If the Lender Says No
A refusal is not the end of the deal. Common alternatives include:
- A larger down payment in place of the seller second.
- A seller credit instead of a note, where the lane allows it.
- A different lane with higher combined leverage.
- A price change that closes the gap.
- A second lien from a third-party lender, where the first lender accepts it.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Promissory note: The written promise to repay a loan, with the amount, rate and due date.
Junior lien: A claim on the property that gets paid after the first mortgage if the loan defaults.
Combined loan-to-value (CLTV): All loans on the home added together, divided by its value.
Balloon: A large lump sum due at the end of a loan after smaller payments.
Subordination: A written agreement by a lienholder to stay behind a newer loan.
Sales concession: A seller benefit, such as a below-market rate, that a lender treats as a price reduction.
Frequently Asked Questions
Can a seller note replace my down payment?
No. The lender counts the seller note as debt, and combined leverage is capped by the lane. The down payment you put in still has to meet the lane’s minimum. Lanes differ on how much cash you must bring.
Does the seller note payment count against my debt ratios?
Yes. The payment goes into your debt-to-income ratio with the first mortgage and your other debts. The fixed lanes use a 50% ceiling, the adjustable lanes 45% and the interest-only lanes 43%. These are subject to lender guidelines and file review.
Does the appraiser need to know about the seller note?
Yes. The public benchmark requires the second lien and its terms to be disclosed to the appraiser. Atypical terms can affect how the price is read. A seller credit or cash back that the appraiser never sees can cause serious trouble later.
Can a family member carry the note?
Sometimes. A relative can carry a note, but lenders look harder at related-party sales. Expect questions about price, terms and whether the deal is truly arm’s length. Whether a lane accepts it depends on its guidelines.
What if the seller wants to sell the note later?
The seller can usually sell the note to someone else, because it is the seller’s asset. Your terms do not change. The recorded lien stays behind your first loan. Ask your attorney how that transfer is recorded.
Next Step
If you are buying a home and want to see whether a jumbo loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Bring the contract and the draft seller note, and the conversation starts with real terms. Lendmire is a mortgage broker licensed for consumer lending in 16 states. It arranges loans through wholesale lenders and does not lend directly. Every program is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B2-1.2-04, Subordinate Financing
2. Fannie Mae Selling Guide B3-6-05, Monthly Debt Obligations
3. CFPB Loan Originator Rule Small Entity Compliance Guide
4. CFPB and Seller Financing (ORTC title-industry summary)
5. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
6. Fannie Mae Selling Guide B3-3.4-01, Other Sources of Income
This article is part of Lendmire’s jumbo loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Cash-Out Refinance a Jumbo Loan? · How the Jumbo Loan Limit Works: When a Mortgage Becomes Jumbo · Can You Get a Jumbo Loan While Carrying Your Current Mortgage?
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
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- 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.