Eric Scharaga
Founder, Damen Capital
Private lender and direct land note buyer serving land investors nationwide. Featured on REtipster, Legends of Land, and Land Investing Online. LinkedIn →
Module 3 covered the question "how is your credit?" This module is the answer key: the exact table that turns a credit score into a required down payment. It is short because it is simple. Lower score, higher down payment. Use it on every deal and be consistent.
Prefer to read? Everything in the video is written out below. This is module 4 of 14 of our free seller financing course for land.
Have the buyer text you a screenshot of their Credit Karma score, or pull a full report yourself.
The screenshot is fastest. They download the app, screenshot the score, and send it within minutes. Pulling the report yourself costs money but gives more detail. If you are selling us the note, we pull the full report as part of our underwriting, so Credit Karma is fine for the first screen.
Check that the screenshot looks legitimate: name, date, and score visible, no cropping around the number. The full pull happens before closing either way.
690 and above needs 20% down, 630 to 689 needs 30%, 601 to 629 needs 40%, and anything under 600 needs 50%.
The principle is risk balanced with equity. The weaker the credit history, the more of the buyer's own money goes in at closing, so they have more to lose by walking away and you have more cushion if they do. This is the same matrix we use when we buy the note.
| Credit score | Minimum down payment | On a $100,000 sale |
|---|---|---|
| 690 and above | 20% | $20,000 |
| 630 to 689 | 30% | $30,000 |
| 601 to 629 | 40% | $40,000 |
| Below 600 | 50% | $50,000 |
| No score | 50% | $50,000 |
Two more rules sit on top of the table. The down payment is 20% or $6,000, whichever is greater, so a $25,000 parcel still needs $6,000 down. And if the matrix calls for more than 20%, the matrix wins regardless of parcel price. Both are covered in Module 5.
Take 50% down and skip the credit check.
No score is treated like a low score: 50% down. And we always waive the credit check for any buyer who puts 50% down, because at that point the buyer has half the purchase price at stake and the note is protected by equity no matter what the history says.
Because in our experience across 250+ land notes, screening this way keeps defaults under 5%, and skipping it can push defaults toward 50%.
Seller financed land without credit screening and without a real down payment is where the horror stories come from. The matrix is the difference between a business and a hobby. It also decides what your note is worth: a 30% down note sells for more than a 20% down note because there is more equity behind it.
Worked example: a buyer with a 655 score wants a $60,000 parcel. The matrix says 30%, so $18,000 down and a $42,000 note. A buyer with a 720 score on the same parcel needs $12,000 down and carries a $48,000 note. Both are fine deals. The first has more equity, the second has stronger credit. Both pass.
Transcript of Module 4, lightly edited for readability. The video was recorded before we passed 250 notes; the figures on this page are current.
Welcome to module four. In the last module, we talked about screening buyers with the question, how's your credit? Now I'm going to show you the exact credit matrix, your underwriting system that determines how much down payment each buyer needs. You have two options. Option number one is that the buyer sends a screenshot of their Credit Karma score. This is the fastest. They download the app, screen shoot their score and text it to you within minutes. Option number two is you pull their credit yourself. If you're working with me and selling the note, I can pull a full report as part of my underwriting. For initial screening, Credit Karma works great. Just verify that the screenshot looks legitimate. Now let's talk about the credit matrix.
Here's your underwriting system that I suggest that you follow. A 690 or above credit score requires 20% down. 630 to 689 requires 30% down. 601 to 629 requires 40% down. And anything below 600 requires 50% down. An alternative for no credit score at all would be an automatic 50% down. I always waive the credit check if someone's willing to put down 50%. The principle is simple. The lower the credit score equals the higher the down payment. You're balancing risk with equity. This system keeps default rates under 5%. Without proper credit screening and adequate down payments, default rates on seller finance land can hit 50%. This matrix is the difference between success and failure for your seller financing business. So I recommend using Credit Karma for fast screening. Follow the matrix, 690 and above, 20% down, 630 to 689, 30% down, 601 to 629, 40% down and anything below 600 needs 50% down. Alternatively, you can accept 50% down with no credit check. Just be consistent every time. In the next module, we'll talk about structuring the deal. Interest rates, term length, fees and how to negotiate with buyers. Let's keep going.
Any score works. 690 and above is 20% down, 630 to 689 is 30%, 601 to 629 is 40%, under 600 is 50%. A buyer with 50% down skips the credit check.
Yes, at 50% down. No score is treated the same as a low score.
A Credit Karma screenshot for the first screen, then a full credit report before closing. If we buy the note, we pull the full report.
Yes. More equity means less risk, and we pay closer to 90% of balance on a note with 30% or more down versus 80 to 85% at 20%.
Tell us the property, the buyer, and the terms. Written quote in 24 hours, cash at closing, no seasoning.
Private lender and direct land note buyer serving land investors nationwide. Featured on REtipster, Legends of Land, and Land Investing Online. LinkedIn →