The straight answer to this question is yes. Promissory notes are an effective means of getting a small mortgage. This is because people who are in between jobs or self employed may have a great deal of financial backing stored away but no way of keeping a specific amount of income coming in. This leads lenders to look negatively upon these applicants and they always seem to have a hard time qualifying for what normal mortgages are.

In these cases, sometimes exceptions are made with lenders in the form of a promissory note. These notes work on a pretty simple premise. The seller takes the mortgage back and the buyer signs a promissory note stating that they will pay the price of the house plus the interest rate on a regular basis. The payments from the promissory note, just like a mortgage contract, results in profits to the seller. 

This usually works out pretty well for both parties but whether or not you can secure one of these deals in today’s housing market is uncertain. Usually, a past history of good standing with a seller will allow you some leeway. They know you pay your bills on time, you have a substantial income and are gainfully employed. The combination of these facts plus the previous good standing work history may allow you to follow through with a promissory note deal with some lenders. 

Just like with any other contract, these promissory notes are often notarized and made into a legally binding document. Just because it isn’t an official mortgage with all of the same terms and conditions, doesn’t mean it doesn’t carry the same weight in court. People who take out promissory notes to secure a mortgage are not always those in a poor financial situation. People who are self employed and have fluctuating incomes are some of the highest percentage of people who use promissory notes. 

Promissory notes in today’s market place may require a down payment or use of tightened requirements. These are necessary, especially in the housing crisis, to ensure the lowest instance of default in the market. This gives lenders the best chance to get their rightful return on their investment.

Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.