Housing Counselor Certification (HUD) Practice Exam

Which document typically outlines the terms of a mortgage?

1. Lease Agreement

2. Bill of Sale

3. Deed of Trust

4. Promissory Note

The correct answer is: Promissory Note

The document that typically outlines the terms of a mortgage is the promissory note. This legally binding document is created when a borrower takes out a loan for real estate. It specifies the amount borrowed, interest rate, repayment schedule, and the terms and conditions of the loan. The promissory note serves as evidence of the debt and is a critical component of the mortgage process because it outlines the obligations of the borrower to repay the loan under the specified terms. While other documents like the deed of trust also play important roles in the mortgage process, they primarily focus on the security interest that the lender holds in the property rather than detailing the specific terms of repayment. The lease agreement pertains to rental arrangements and does not involve the assessment of property loans, and a bill of sale relates to the transfer of ownership of tangible personal property rather than real estate financing. Understanding the purpose of these documents clarifies why the promissory note is the correct choice.