Does the buyer's credit history actually matter when I'm the one holding the note forever

Your attorney's framing is defensible and your collateral math is real, but I'd push back gently on one piece of it.

Credit score is a noisy signal, agreed. What it's actually measuring is payment behavior across multiple obligations at once. A 610 can mean one bad stretch years ago, or it can mean someone who routinely runs late when cash is thin. You can't tell from the number alone, and that's exactly why pulling the full credit report matters more than the score. Look at the pattern: was there a single medical debt that cratered the number, or is there a trail of 30-day lates on ordinary bills over the past two years? The second pattern is relevant to whether he services your note.

The down payment cushion argument is solid. At 15% down on a $279,000 note, your buyer has $41,850 at risk before he walks. That's meaningful. Your collateral reasoning also holds: if you're confident the property holds value in a down market, your recovery position in a default is better than it would be on a property with shakier fundamentals.

The thing I'd add is that neither of these two factors replaces income documentation. Two years of self-employment is short. You'd want to see two years of tax returns and confirm the income is stable enough to carry a monthly payment at 6.75% on a 20-year amortization, not just sufficient on paper, but consistent. A mortgage broker or loan originator can help you structure that review even when you're holding the note yourself.

Your situation touches on tax treatment too, specifically installment sale rules. A tax professional is the right person to confirm how structuring this affects your capital gains across the balloon term.

Which part of the 610 buyer's credit report did your attorney suggest you focus on when you reviewed it?

The 610 self-employed two years part is the thing I'd be sitting with, not the score itself. Two years is right at the edge of where income actually stabilizes for most self-employed people, and if year two was significantly stronger than year one that pattern can flip back fast.

On the down payment math, that 15% cushion sounds better until you factor in that Maplewood-type markets in a real correction don't stop at 8%. I've watched similar price points drop 18-22% in the 2010-2012 window and both buyers are underwater at that point regardless.

Pull two years of his Schedule C net, not gross, and if the trajectory is flat or declining I'd take the 740 W-2 at 10% and sleep better.

The 7-year balloon is actually where your real risk lives, not the origination credit score. Either buyer can make payments for seven years, then the balloon comes due and if the 610 guy can't refi in 2032 because he's still got thin credit and lenders won't touch him, you're either extending the note on terms you didn't plan for or you're foreclosing on a guy who paid on time for seven years, which is its own kind of nightmare. I've had that exact conversation with a note holder in St. Louis county who carried a 580-credit buyer on a similar structure and the balloon maturity turned into an 18-month standoff because the buyer genuinely couldn't refi and genuinely had no intent to walk. The extra $13,950 at closing feels like cushion but it doesn't buy you out of that scenario. If I were writing this, I'd push the balloon to 10 years minimum or negotiate a conversion clause so they can extend at a rate adjustment rather than a hard maturity, and I'd require two years of full tax returns from the self-employed guy, not just a score, because what I actually want to see is whether income is trending up or being manufactured for this transaction.

Ran notes for about six years before I started writing equity checks instead, so I watched this from the lender side for a while. The correlation between origination score and default on seller-carried paper is genuinely weak compared to what you'd see in institutional portfolios, and I think the reason is selection: the people who seek out seller financing are often doing it because conventional is closed to them, so they are motivated to protect the relationship in a way a bank borrower isn't. The 610 guy losing this house means he's back to renting for another decade. That asymmetry matters more to me than the score.

What I'd actually push on is the two years self-employed, not the 610. I'd want to see two full years of Schedule C or K-1, and I'd underwrite to the lower of the two years' net income after addbacks, not the average. If his 2022 was great and 2023 was soft, that trajectory tells you more than the score ever will. The $13,950 difference in down payment is real money but on a 7-year balloon your actual exposure is whether he can refinance out in 2031 or you end up extending or foreclosing. I'd be asking him right now, directly, how he plans to exit the balloon, because self-employed borrowers with sub-650 credit don't always have a clean path to conventional in seven years even with a good payment history, and you want to hear whether he's thought about that or whether he's just betting on appreciation to bail him out.

Carried three notes, one went sideways, and it was the 680 W-2 guy, not the self-employed one. Lost eight months of payments before I got the property back in 2019, and his score at origination looked cleaner than anyone I'd financed before.

What I'd actually want to see from the 610 is two years of bank statements showing consistent inflows, not the tax returns, because self-employed people optimize their returns to look broke. If his deposits are steady and he's not drawing the account down to zero every month, that tells me more than a score that's probably dinged from a medical collection or a divorce, not from not paying his mortgage.

The extra $13,950 at closing also isn't nothing when you're the one eating maintenance calls while you wait on a balloon.

The detail nobody talks about until month 14: self-employed two years means he is probably still in the phase where business cash flow and personal cash flow are the same account, so ask for two years of business bank statements, not just tax returns, because Schedule C can be optimized down to almost nothing and still show a guy who is actually moving real money.

The 610 score at origination matters less than whether he has had a mortgage or installment trade that he paid through a rough patch, so pull the full report and look at the narrative, not the number. A 610 with one medical collection and otherwise clean is a completely different borrower from a 610 with two prior lates on a car note.

Your balloon in 2031 is where I would be doing the hardest math, because if rates are still elevated and he cannot refi, you are either extending or taking the property back, and his ability to survive a tough refinance environment seven years out is the whole game.