Most purchases of residential property are financed through mortgages. A mortgage is a financial transaction by which a purchaser borrows money from a lender that is payable over time. The conditions and terms of the loan are usually determined by the purchaser's credit scores and the appraised value of the property. In return for receiving the funds, the borrower gives the lender an interest in the property as security for repayment. If the borrower fails to make payments, the lender may foreclose the mortgage by selling the property and applying the proceeds of sale to the mortgage indebtedness.

The Mortgage

The documents that are used in mortgage transactions are the mortgage itself and a note. The mortgage states the amount of money loaned to the purchaser, the interest rate, and the payment terms and conditions. The mortgage may consist of many pages and may include many attachments, but the essence of the mortgage document is a statement that the property will be sold if the purchaser does not repay the funds according to the mortgage's terms and conditions.

The Note

By comparison with the mortgage, the note is a simple document. The note is a statement that the purchaser agrees to pay the lender a certain sum by a certain date at a specified rate of interest.

Assumption of the Mortgage

Assumption is an agreement by a purchaser to take over the mortgage of the owner of the property. Unless specifically stated in the document, a mortgage is generally not assumable. If the mortgage provides for assumption, the mortgage document usually provides that the lender has retained a right to evaluate the creditworthiness of the person who seeks to assume the mortgage. The lender has the right to make that evaluation and refuse to give its approval if its criteria are not met.

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