How to Create a Mortgage Note

A mortgage note is a promissory note secured by a mortgage or deed of trust. Read on as we explain the process for creating a mortgage note.

Creating a mortgage note is one of the most important steps in a seller-financed real estate transaction. A properly written note establishes the repayment terms, protects the lender’s rights, and creates an asset that can often be sold to a mortgage note buyer in the future.

Whether you’re financing the sale of a home, investment property, or vacant land, the quality of the mortgage note matters. Clear loan terms, appropriate collateral, and accurate documentation can make the difference between a note that is easy to sell and one that receives discounted offers or little buyer interest.

This guide explains what should be included in a mortgage note, how mortgage notes are secured, and the decisions that can improve the long-term value of your investment.

What is the difference between a promissory note and a mortgage note?

A promissory note is a promise to pay a loan according to the agreed terms. Promissory notes are used in all types of secured and unsecured loans. A mortgage note is a promissory note secured by a lien on real property.

The two primary types of liens used are a mortgage and a deed of trust. Both of these security instruments guarantee repayment of the mortgage loan.

Think of the promissory note as the borrower’s promise to repay the loan, while the mortgage or deed of trust provides the lender with legal rights against the property if the borrower stops making payments. One creates the debt; the other secures it with real estate. Both documents work together, and one is generally ineffective without the other.

Why does this matter if you eventually sell the note?

Mortgage note buyers evaluate both documents during due diligence. Missing signatures, inconsistent loan terms, or improperly recorded security instruments can delay a transaction or reduce the value of the note.

That bridges directly into Deed Street’s business without feeling promotional.

What Makes a Mortgage Note Attractive to Buyers?

If you expect to sell your mortgage note in the future, it’s worth thinking beyond simply documenting the loan. Buyers evaluate risk, and certain characteristics consistently make notes more valuable.

Generally, buyers prefer:

Borrowers with established credit histories
Meaningful down payments that create equity
Reasonable loan-to-value ratios
Market interest rates
Consistent monthly payment schedules
Clear documentation with properly recorded security instruments

While every transaction is different, structuring a note with future marketability in mind can significantly improve your options if you later decide to sell.

Deed of Trust

A deed of trust is a security instrument held by a trust and administered by an impartial third party known as a trustee, until the note is paid in full. When the note is paid, the trustee dissolves the trust and removes the lien from the property.

In the event of a default, the trustee pursues a non-judicial foreclosure, which is typically faster and less costly than a judicial foreclosure. In a non-judicial foreclosure, the trustee may initiate the sale of the property without involving the court system.

Mortgage

A mortgage is a security instrument held by the noteholder. If the borrower pays the loan in full, the noteholder is responsible for removing the lien from the property. In the event of a default, the note holder must obtain a decree of foreclosure from a court action in order to initiate the foreclosure process.

What to Include on a Mortgage Note

The Department of Housing & Urban Development (HUD) has provided model mortgage notes as a guideline to show what should be included. It is important to ensure your terms and conditions are unambiguous and that they are profitable for you while still being fair to the borrower.

Identifying Information for a Mortgage Note

The note should include the full name of each borrower and any co-signers that will be responsible for the repayment of the loan. It should also include the name of the legal name of the noteholder. If this is a business entity, the name of the business should be listed.

The property address must be included. Optionally, you can also include the legal description. The form should also include a promise to repay.

Accuracy matters. Even small discrepancies between names on the note, deed, or closing documents can create delays during a future sale. Before finalizing the documents, verify legal names, ownership interests, property addresses, and entity names exactly as they appear in the closing paperwork.

Loan Terms

The terms of the loan should be clearly defined and include the following:

Payment Information

Payment information includes the following:

Default Procedures

Default provisions should be realistic, clearly written, and legally enforceable under your state’s laws. They should explain when a payment is considered late, when fees apply, how notice is delivered, and the lender’s rights if the default continues. Clearly defined procedures protect both parties and reduce uncertainty if problems arise.

The mortgage note should clearly explain the procedures that will be followed in the event of a default, including information about the following:

The Security Instrument

The mortgage note should mention whether a deed of trust or mortgage being used and how this may impact a property transfer, default, or payoff.

Whether your state uses mortgages or deeds of trust depends on local law. While the documents serve similar purposes, the foreclosure process can differ significantly. Understanding which security instrument applies to your transaction helps ensure the loan is properly documented and enforceable.

Signatures

Every borrower and co-signer, as well as the noteholder or any party authorized to sign on behalf of the noteholder, should sign the note. These signatures should be notarized.

FAQs

What is a mortgage note?

A mortgage note is a promissory note secured by a mortgage or deed of trust. The promissory note spells out the terms of the loan including the loan amount, monthly payments, interest rate, and length of the loan.

Where do I find my mortgage note?

As the borrower, you’ll receive a copy of your mortgage note at closing, but the original is retained by your lender or mortgage servicer. This original note acts as the official record of your loan terms and is typically stored securely by the lender. In many cases, lenders may sell the original note on the secondary market shortly after closing as part of the loan servicing process. If you need to review or verify your mortgage note later on, you can request a copy from your lender or servicer, who can also provide details if the loan has been transferred to a new holder.

What is the difference between a mortgage note and a deed?

A promissory note is a promise to pay a loan according to the agreed terms. Promissory notes are used in all types of secured and unsecured loans. A mortgage note is on real property.

What does it mean to sell a mortgage note?

Selling your mortgage note frees you of the risks inherent in carrying a loan while also allowing you to receive a lump sum payment, which can be used to fund other investments.

How can Deed Street Capital help create a mortgage note?

While Deed Street Capital does not prepare legal mortgage note documents, we can help you understand the characteristics that make a private mortgage note more attractive to future buyers. If you’re planning a seller-financed transaction, our team can explain the factors institutional note buyers typically evaluate, including borrower credit, down payment size, loan-to-value ratio, interest rate, payment structure, and documentation.

Planning ahead can improve both the marketability and potential value of your note if you decide to sell it later. Once your mortgage note is established, Deed Street Capital can provide a no-obligation evaluation and explain your options for selling all or a portion of the note for a lump sum.