How it works
The buyer and seller agree on a price, a down payment, an interest rate and a payment schedule. The seller transfers the deed, and the buyer signs a promissory note promising to pay. A mortgage or deed of trust secures the note against the property.
The terms are negotiated by the parties, so each deal is different.
Documents usually involved
A purchase contract, a promissory note, a security instrument, a deed to the buyer, and often a closing statement and insurance requirements. Some deals add a due-on-sale clause or a balloon payment. An attorney or title company should prepare these.
The notary does not draft anything or advise on terms.
Who signs and who notarizes
The seller signs the deed before a notary. The buyer signs the note, and signs the security instrument before a notary. Each person who signs a recorded document needs ID. The parties should confirm exact names and the property description before the appointment.
Keep the original note somewhere safe, as it is the evidence of the debt.
Recording and servicing
Recording the deed and the security instrument protects both sides by putting them on the public record. Payments can be handled by a loan servicing company or directly between the parties, but keep written records of every payment and receipt.
Check federal and state lending rules, since regulations can apply to seller-financed deals depending on how often a seller does them.
Common mistakes
Using a handshake or a form downloaded without review. Skipping title insurance. Forgetting insurance and tax responsibilities. Leaving out what happens upon default. Neglecting to record. Each of these can create expensive disputes. Speak to a real estate attorney before you sign, and have the notary appointment scheduled only once the documents are final.
Protecting both parties and what the notary sees
The seller wants security if payments stop, so the lien should be recorded, insurance should name the seller as a party, and taxes should be tracked. The buyer wants proof of each payment, a clear payoff process and a release of the lien at the end. Written terms for late fees, grace periods and default are essential.
A servicing company can handle collection and records for a modest fee, which may help both sides.
On signing day the notary sees pages, not the whole deal. They confirm each signer's identity, watch the signatures and complete the certificates. They do not know if interest rates are lawful or if the price is fair. That is why the parties should have their own advisers.
Include a plan for the end of the loan as well. If the note has a balloon payment, the buyer will probably need to refinance or sell by that date, and the seller should know what happens if that fails. Put the process for default, notice and cure in writing. These are the sections people regret skipping when a payment is late and no one knows what to do.
Common questions
Do both sides need a lawyer?
It is wise for each side to get advice, since the deal is custom. A lawyer can also confirm lending rules that may apply.
Does the note have to be notarized?
Not always. The security instrument and deed usually are. Your attorney or title company will say.
Who keeps the original note?
The holder of the debt, which is the seller. The buyer keeps a copy and gets the note back marked paid when the loan ends.
More notary guides
- Adding or Removing a Spouse on a Deed: The Signing Side
- Using a Power of Attorney at a Real Estate Closing
- Signing Closing Documents When a Trust Owns the Home
This guide is general information, not legal advice. Fees and procedures change; check with the office involved or an attorney for your situation.