What Is Meant by the Term Consideration on a Mortgage?

During the home-buying process, you'll come across many terms. Even the ones that may seem familiar have a different meaning when it comes to a mortgage and other documents. The term "consideration" means something of value. Generally, when people discuss consideration in a mortgage and real estate transaction, they are referring to money. However, consideration isn't limited to just money.

Borrower and Lender Consideration

In legal terms, the consideration is the obligation each person makes to the other involved in a contract. Both parties are required to place some consideration for the contract to be enforceable. For a mortgage, the money the lender loans the borrower is the consideration. The borrower promises to repay the loan, with the home securing the debt as collateral. If the borrower defaults, the lender can foreclose on the property.

Buyer Consideration in a Sale

A real estate contract between a buyer and seller also requires consideration. For the buyer, the consideration is typically an earnest money deposit. Although some type of deposit is usually required when making an offer, it isn't required to make a contract valid. Earnest money is only one type of consideration. A promise to perform under the contract is another type of consideration that may be acceptable when there is no earnest money deposit needed.

Seller Consideration in a Sale

When the seller accepts the buyer's offer and signs the contract, the seller also contributes consideration in the form of a promise. The seller takes the home off the market and agrees to sell his home, provided the buyer holds up his end of the agreement. The earnest money deposit and any other form of consideration are negotiable between the buyer and seller.

Deed Consideration

Consideration isn't a requirement to transfer property with a quit claim deed, grant deed or warranty deed. When consideration is listed on a blank deed form, it's referring to the amount the grantee is paying the grantor for the property. If the property isn't being transferred through a sale, you don't need to list a consideration. The transfer will still be valid without listing a consideration, as long as the deed is executed and recorded properly.

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