What is a Promissory Note in Real Estate?

what-is a promissory-note-in real-estate

A promissory note is, in simple terms, a written promise to pay a specific amount of money by a certain date or upon meeting certain conditions. It’s a legally binding document that outlines the terms of a loan or debt, including interest rates, payment schedules, and what happens in case of default. In the context of real estate, promissory notes are commonly used to outline the terms of a mortgage, trust deed, or land contract.

Why Are Promissory Notes Important in Real Estate?

In the world of real estate, promissory notes are a crucial piece of the financing puzzle. They serve as evidence of a loan and define the relationship between a lender and a borrower. Here’s why they matter:

  • Legal Proof: A promissory note is a legally binding document that serves as proof of the borrower’s promise to repay the loan. This can be critical if there’s ever a dispute or legal action.
  • Interest Rates and Terms: The promissory note outlines the interest rates, loan terms, and repayment schedule. This clarity helps both parties understand their obligations.
  • Secured vs. Unsecured: Promissory notes can be secured by real estate (like a mortgage or trust deed) or unsecured. Secured notes give the lender rights to the property if the borrower defaults.

What Is a Promissory Note In Real Estate?

promissory note in real estate is a legally binding agreement between the lender and borrower. It includes the loan amount, the loan terms (Term, interest rate & number of payments).

Along with a Real estate promissory note, a security agreement such as a mortgage or deed of trust, is generally included.


Types of Promissory Notes in Real Estate

Promissory notes in real estate may be secured or unsecured and have adjustable or fixed-rate interest.

Secured vs. Unsecured Loan Notes

The primary difference between secured and unsecured promissory notes is collateral.  In a secured loan the borrower places collateral, often the property itself, to ensure payment by the borrower. The lender takes possession if the borrower fails to meet the note terms. With an unsecured promissory note, the borrower doesn’t put up collateralto ensure loan repayment. Should the buyer default, the lender may pursue collections or sue the buyer to recover the property value.

Adjustable Rate vs. Fixed-Rate Notes

Adjustable rate and fixed rate notes apply different interest rate terms.  An Adjustable interest rate allows for changes to the interest rate and monthly payment. Adjustable rates are ideal for real estate transactions when the buyer expects to pay the loan off or sell before the interest rate increases.

A fixed interest rate loan sets a fixed interest rate and monthly payment amount. This reduces the risk for the buyer, who can make a repayment plan without unanticipated changes.

Promissory Notes in Real Estate are necessary in all Real Estate Financing

1) Residential Real Estate Loans: Promissory notes are used in financing residential real estate transactions, such as home mortgages.

2) Commercial Real Estate Loans: Promissory notes are also necessary in commercial real estate finanincg transactions, including loans for office buildings, retail spaces, and industrial properties.

3) Construction Loans: Promissory notes are used to finance construction projects, with funds disbursed in stages based on project milestones.

4) Seller Financing: In seller financing arrangements, the seller issues a promissory note to the buyer for a portion of the purchase price, and the buyer makes payments to the seller instead of a traditional lender.

Components of a Real Estate Promissory Note


Each real estate promissory note has different details based on your transaction, but most include the following:

  • Principal amount: Indicates the amount of the loan and the currency in which it is calculated. This is usually the value of the real estate property being purchased.
  • Interest rate: Specifies the fixed or adjustable interest rate the borrower agrees to pay to the lender over the term of the loan
  • Maturity date: Indicates the agreed date for the loan to be paid in full. This is usually the final installment due date.
  • Payment schedule: Defines the frequency and amount of installment payments to pay the promised loan amount by maturity.
  • Security clauses: Details the property used as collateral for secured notes and the penalties and legal actions the lender may take in the event of default.

Types of Real Estate Financing Supported with Promissory Notes

Promissory notes are often part of a larger real estate financing plan. The most common uses in real estate include the following.

1. Traditional Mortgages

Traditional mortgages include a secured promissory note. The note acknowledges that the borrower is responsible for repaying the loan to the lender. It consists of the amount and terms of repayment and, with the mortgage agreement, outlines the penalties for default. A traditional mortgage allows the lender to take ownership of the financed property if the borrower fails to meet the loan payments or terms agreed to in the note.

2. Seller Financing

Sometimes, the seller of a property will finance the real estate purchase directly through seller financing. In seller financing, the seller acts as a bank and receives payment for the real estate property directly from the buyer. This is particularly helpful for people with lower credit scores who have difficulty securing a home loan or personal loan.

A clear, detailed promissory note is critical for seller financing. It is the primary payment agreement between the buyer and seller and should include loan terms, payment amounts, and interest rates. A promissory note for seller financing should address the penalties and remedies for late payments.

3. Private Loans

When purchasing real estate, the buyer may not use a conventional mortgage but use a private loan. This could be through a private company or other lender. Again, the promissory note ensures both parties know the loan repayment amounts, terms, and interest rate.

There are unique Aspects of Promissory Notes in Real Estate

While many websites discuss the basics of promissory notes, let’s explore some aspects that often go unnoticed:

Customization and Flexibility

One lesser-known feature of promissory notes is their flexibility. Unlike traditional bank loans, seller-financed promissory notes can be customized to meet the needs of both the borrower and the seller. This flexibility allows for unique arrangements, such as varying interest rates, balloon payments, or specific conditions that must be met before repayment of the entire loan.

Benefits for Sellers

For sellers, a promissory note can be an attractive option, especially in a slow market. By offering seller financing, they can broaden the pool of potential buyers and even negotiate a higher sale price. Additionally, a promissory note can generate a steady stream of income over time.

The Role of Land Contracts

In some regions, land contracts are a popular form of seller financing. A land contract is a type of promissory note where the seller retains legal ownership of the property until the buyer fulfills the terms of the contract. This can provide additional security for the seller and allow them to repossess the property in case of default.

Why Use Promissory Notes In Real Estate?

Promissory notes facilitate real estate purchases and home loans by promising the lender payment on specific terms. The promissory note creates a legal document between a borrower and lender for repayment. They are sometimes used in real estate transactions when the borrower does not qualify for a traditional mortgage loan through a lending institution.

Promissory Notes detail the loan agreement, including the principal, repayment amount, and interest. A promissory note may be used with a mortgage, deed of trust, or other loan agreement. The lender and the borrower sign to make it a legally binding agreement.

Unlike a mortgage or deed of trust, the note does not allow the lender to take possession of the property/collateral in the event of default. Unless otherwise specified, it does not typically allow the lender to foreclose on the property to recover their investment.

Selling a Promissory Note for Cash

If you have a real estate promissory note and are considering selling it for immediate cash, you’re not alone. Many people find that selling their promissory note can provide the liquidity they need for other investments or personal needs. This is where companies like American Funding Group come into play. They specialize in buying real estate notes, allowing note holders to convert their future payments into a lump sum of cash. If you’re in a position where cash is more valuable than a steady income stream, selling your promissory note might be the right move.

Unlock Top Dollar for Your Promissory Note: Choose the Best Note Buyer

Selling a note, whether it’s for a mortgage or a business, is a big decision. You deserve a smooth, stress-free experience and the best possible return on your investment. But with countless note buyers out there, how do you choose the one that’s truly right for you?

Look no further than these 4 golden qualities of a top-notch note buyer:

1. Seasoned Expertise: You wouldn’t trust a rookie chef with your birthday dinner, so why trust your valuable note to an inexperienced buyer? Seek a company with at least 10 years of full-time note buying experience. Their proven track record ensures they’ve navigated every curveball the market throws, maximizing your profit while minimizing hiccups.

2. Squeaky-Clean Reputation: Don’t settle for “maybe” – demand outstanding reviews. Check Google, and industry forums for a buyer’s glowing reputation. Look for consistent praise for their professionalism, transparency, and commitment to customer satisfaction.

3. Knowledgeable: For mortgage notes find a buyer with a stellar reputation. Choose a buyer with in-depth knowledge of note intricacies and regulations. This ensures they can navigate legal hurdles and paperwork with ease, protecting you every step of the way. Check out your note buyer’s Googe reviews and testimonials.

4. Intuition Check: Beyond the numbers, trust your gut. When you chat with the buyer, do they seem genuinely interested in your note and your needs? Can they answer your questions clearly and honestly, without jargon or evasiveness? Do they prioritize your satisfaction, offering helpful advice and tailoring the process to your specific situation?

Remember: the best note buyer isn’t just about the highest offer. It’s about finding a trusted partner who understands your goals, respects your time, and empowers you to sell with confidence.

Looking for a buyer who ticks all the boxes? Look no further than American Funding Group. With over 30 years of experience, a consistently impeccable reputation, and a team of experts, they’re the gold standard in note buying.

Don’t let your valuable note languish in the wrong hands. Choose American Funding and unlock the top dollar you deserve.

About American Funding Group: Your Trusted Promissory Note Buyer

Tired of the runaround from other note buyers? At American Funding Group, we understand the complexities of selling a mortgage note. That’s why we’re not just any note buyer – we’re your trusted partner, dedicated to helping you achieve your financial goals with respect, transparency, and creative solutions.


Meet Kevin Clancy, your President and Coast Guard Academy graduate. With years of experience in both military service and finance, Kevin leads our team with a can-do attitude and a commitment to overcoming any obstacle.

Our core values are the bedrock of our success:

  • Integrity: We do what we say, period. No empty promises, just reliable action to get your deal done.
  • Communication: We’re not fans of the silent treatment. You’ll be kept informed every step of the way, so you’re always in the loop.
  • Respect: You’re not just a transaction. We value your trust and treat you with the dignity your financial asset deserves.

Since 1989, American Funding Group has been a beacon of trust in the note buying world. We’ve purchased thousands of notes, solved countless problems, and even tackled situations other buyers deemed impossible. And most importantly, American Funding Group wants to buy your mortgage.

Why choose us?

  • Creative problem-solving: We don’t believe in one-size-fits-all solutions. We’ll craft a unique approach tailored to your specific needs, maximizing your return.
  • Experience matters: With decades of expertise under our belt, we’ve seen it all. No challenge is too complex, no note too intricate for our team.
  • Proven track record: Thousands of satisfied clients and a reputation for excellence speak volumes about our commitment to your success.

Searching for the “right” mortgage note buyer can feel like searching for a needle in a haystack. But with American Funding Group, you can rest easy. We’re not just another face in the crowd – we’re your trusted partner, ready to navigate the complexities of your note sale and deliver the respectful, efficient, and profitable experience you deserve.

Don’t settle for less. Contact American Funding Group today and let’s unlock the full potential of your mortgage note.

What Promissory Note Sellers have said about dealing with us: 


It’s very important to us that when you are selling a promissory note that you have a great experience. We are very proud of our American Funding Group testimonies. In the end, we’re not happy if you’re not happy.  So, check out what others have said about us.

One of our customers, A.C. Of Rochester, NY, had this to say: “American Funding Group, we want to send you a special thanks for your kindness, promptness and thoroughness in the way you handled our transaction. We were more than satisfied and will recommend you highly in the future.” 


“The cash settlement you gave me exceeded my expectations. I would not hesitate one moment to recommend you.“ J.S., Ft. Worth, Texas

“The transaction was handled very well. We appreciate the way you were able to overcome the problems, particularly the lack of cooperation of the payor. Great job! “ J. & B. M., Palm City, FL.

Legal Implications and Protections

Whether you are a borrower or lender, you benefit from understanding the legal implications, protections, and state laws governing promissory notes.

Since a promissory note is a legal and binding agreement, it offers some protection for both the lender and the borrower. A signed, documented payment agreement allows both parties to hold the other accountable if there is a disagreement.

A promissory note can ensure the buyer takes ownership of the property when they satisfy the loan agreement terms. At the same time, the note provides guidelines for loan repayment and outlines consequences. This protects the lender, who has legal grounds to sue the borrower if they default.

member: valuing a note is both an art and a science. While these factors provide a solid framework, different note buyers might have their own specific weights and nuances. Do your research, compare offers, and choose a note buyer who values not just the numbers, but also the unique story behind your note.


Promissory notes are a critical component of real estate transactions, providing flexibility and legal protection for both buyers and sellers. Whether you’re considering selling your property with a promissory note or have one and want to explore your options, understanding the ins and outs of these documents is key.

So, now that you have a better grasp of what a promissory note in real estate entails, are you ready to take the next step in your real estate journey? To get started just fill out the form below:

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