Buying property can be a great investment, but the purchase comes with a lot of paperwork. Lenders protect their money by requiring buyers to sign documentation associated with the loan. Various state laws require different paperwork, but Tennessee operates as a Deed of Trust state. Ultimately, a deed of trust is a legal document that ties the buyer and lender together until the loan is paid off. We take a closer look at what this means when buying property.
Tennessee Mortgage Requirements
The Promissory Note
Tennessee requires two documents when buying a house. The first is the promissory note which can go by a few different names: IOU, a loan agreement, or "note." The document is a legally binding agreement between borrower and lender. Within the text, the borrower agrees to pay back the amount loaned in full during the period specified.
The Deed of Trust
The State of Tennessee is a deed of trust state. Other states might require you to sign a mortgage, but you can expect when you buy a house in Tennessee to sign a deed of trust. The document in question is an agreement between the borrower and lender that allows the lender to foreclose on the property. This means that the lender can sell the property in the event the borrower defaults on the borrower’s obligations in the note or deed of trust. Most commonly, a lender will foreclose in the event no payments have been made.
Common Questions About Your Promissory Note and Deed of Trust
What Can You Find in a Promissory Note?
The information in the promissory note is straightforward. The addresses of both the lender and borrower are often listed, as well as the amount of money being borrowed. The document may also describe any collateral used to secure the loan in the event it's not repaid and specifies how often repayments will be made.
What is the Difference Between a Deed of Trust and a Mortgage?
Well, to start, it's the number of people involved in the agreement. The deed of trust has three parties and the mortgage only two. The deed of trust includes the trustor (the person borrowing money to buy the property), the lender, and the trustee. The trustee is a third party, quite often an escrow company. The trustee holds the real property title until the loan is paid off. If a foreclosure happens, the trustee is responsible for selling the property.
Is a Mortgage or Deed of Trust Better?
Both documents pledge the property for resale in the event payments are not made as per the agreement in the promissory note. A mortgage that goes into foreclosure needs to go through the courts. The lender must essentially pursue a lawsuit against the borrower and complete a judicial foreclosure. A deed of trust bypasses the courts. It's a lot faster and doesn't cost as much for either the buyer or lender.
Signing the Deed of Trust
Who Must Sign the Deed of Trust or Mortgage?
Everyone who is on the title of the property is required to sign the deed of trust. There are exemptions. In a "purchase money mortgage" transaction in which only one spouse owns the property, the other spouse is not required to sign the deed of trust. Buying commercial property means you don't need to list your non-titled spouse or expect your spouse to sign the deed of trust.
In situations involving seller financing, the seller extends to a buyer a loan in order for the buyer to purchase the property. Seller financing may be extended when the buyer doesn't qualify for a traditional loan to purchase property. The seller may require a credit check, but typically the terms and conditions are a little more flexible. In situations involving seller financing, your spouse may also not be required to sign the deed of trust as long as your spouse is not on the title to the property.
Tips Before Getting a Mortgage
First-time buyers might want to do a little research about what they can expect before purchasing a property. Here's what you should consider when buying a home.
Check Your Credit
Your credit score might determine whether or not you qualify for a loan or your interest rate for the loan. Banks are still cautious about giving out loans and consider the credit score in their decision.
Run Payment Calculations
You'll need to prequalify for a loan before you can start officially search for properties. Lenders want to know you earn enough money before they let you borrow. Your monthly payments should be relative to your income.
Know the Different Types of Loan Options
A 30-year fixed rate mortgage is generally one of the safest to sign and your best bet when purchasing the property. Buyers find the information easier to digest and to analyze.
Have a Down Payment
Some mortgages require a down payment. Each lender has a different percentage they need to qualify. The average is between 10% to 20%. You can research the average price for properties in your area to get a general idea of how much 10%-20% will look.
Get Help with Your Real Estate Title and Closing
Trusted real estate lawyers like Rochford Law & Real Estate Title help individuals get the most from their sale. Navigating the complex paperwork is challenging. Our team reviews documents and contracts associated with the purchase to ensure you're getting the best deal and rate. You get professional recommendations based on your needs. Contact us today to schedule your complimentary consultation.