Deed vs Note vs Mortgage
Closing on a house can be overwhelming with all the paperwork to sign and money to shuffle. As a result, many homebuyers leave a closing without a basic understanding of exactly what they signed. However, it’s important they know the end result of all that paperwork, and their real estate agent is the perfect person to explain it all to them.
There are essentially three instruments, or documents, involved in most real estate transactions – the deed, the note, and the mortgage. Understanding the difference between them all is important for homebuyers so they can be sure they are making the right decisions in the homebuying process.
The Deed
A deed is a legal document that provides the right of ownership of a property. It transfers the right of ownership to the grantee, or buyer, who then has rights to use the property. There are many types of deeds, such as General Warranty Deeds, Quitclaim Deeds, and Grant Deeds, and the deed given dictates the type of ownership being conveyed. Deeds are legal documents that are recorded in courthouses for public records.
The Note
The note and the mortgage are two different instruments, but they go hand-in-hand with one another. The easiest way to remember which is which is to remember the note is attached to the person while the mortgage is attached to the property.
The note, also known as the promissory note, is the document that dictates who is personally liable for paying back the debt for a property to the lender. The note secures the debt against the individual responsible for paying it. This document states the details of the debt repayment, such as what is owed, the interest rate, the payment amount, and the length of the mortgage. These documents are not recorded in the courthouse.
The Mortgage
In most instances, the note is secured by the property. The mortgage is the document that gives the lender its security interest in the property until the note is paid. When signing the mortgage, homebuyers agree that if they default on the note, the lender can foreclose on the property.
If differs from the note because the mortgage doesn’t actually obligate the buyer to pay the lender back. It just says the lender can take the property should the homeowner fail to pay.
Mortgages are filed in the courthouse as public record, and anyone listed on the deed must be listed on the mortgage. But that person doesn’t have to be the same person listed on the note as the party responsible for the debt.
Though they are distinctly different, each of these critical closing documents is a legal document, so it’s important for homebuyers to understand what each one is and the implications of signing them.
