What is a promissory note in real estate finance?

A promissory note is a critical financing instrument in real estate that outlines the terms of a borrower's obligation to repay a loan. It typically includes essential details such as the amount borrowed, the interest rate, the repayment schedule, and the consequences of default. This legal document serves as a written promise from the borrower to the lender, establishing a personal liability to repay the loan under the specified terms.

Understanding this concept is fundamental in real estate finance because the promissory note not only represents the borrower's promise to pay back the loan, but it also provides the lender with the legal recourse necessary to enforce the loan agreement if payments are not made as agreed. Thus, it is the definitive record of the borrower's financial commitment and is essential during the transaction involving the transfer of property ownership.