The purchase of a home is likely one of the most significant purchases that you will make in your lifetime. Unless you are able to pay for your house out of your savings however, you will probably have to raise a portion of the funds by way of a mortgage.

A mortgage is a conveyance of property by a debtor (you) to a creditor (a bank or other lender) as security for a debt on condition that it shall be returned on payment of the debt within a certain period.

Before a bank or lending company will process your application for a mortgage however, they will want to see a copy of the completed Purchase and Sale Agreement in respect of the property.

That agreement is between you, as purchaser, and the person selling the property (the vendor). It outlines the terms under which the property is being sold, such as the price, amount of deposit and the completion date.

The Purchase and Sale Agreement should contain a provision making your purchase subject to you being able to secure suitable financing for the property within a specified period of time -- 14 days, for example -- of the date that the agreement is signed. This is vitally important, as it ensures that any deposit -- normally ten percent of the purchase price -- is returned to you with interest should your mortgage application not be approved.

Because the time period for securing financing is normally quite short, you should make arrangements to meet with your loan officer as soon as your property attorney has approved the Purchase and Sale Agreement and has secured all necessary signatures.

Once the bank or lending company (the mortgagee) has approved your mortgage application, you will be notified and the mortgagee will send instructions to your property attorney. Upon receiving those instructions, your attorney will draft the Conveyance that will transfer title to the property from the vendor to you, as well as draft the mortgage itself.

The mortgage will actually transfer the property from you, the borrower, to the mortgagee, with a provision that the mortgagee will transfer the property back to you in the future, free and clear of any mortgage, if you adhere to the terms of the mortgage.

The mortgage terms will contain an agreement by you that you agree to repay the borrowed funds (the principal sum), with interest at a specified rate, by way of a series of payments to be made on a specified day of the month for a specified period of time. You will also be required to promise that you will: insure any building on the property against loss or damage by fire, windstorm and other comprehensive risks, with the policy endorsed to indicate the mortgagee's interest in the property; maintain the property in good repair and condition; not make any structural alterations or additions without the mortgagee's permission; and not to lease or rent or dispose of the property without the mortgagee's consent.

These stipulations may cause you to feel that you have no control over your own property, but you must remember that you have used the mortgagee's money to purchase the property -- and have even transferred that property to the mortgagee. Consequently, you must abide by the conditions under which the loan has been made to you.

Failure to do so may result in the mortgagee calling in the mortgage, and selling the property, as the mortgage will contain a provision permitting the mortgagee to do so if you are in breach of the terms of the mortgage.

When you are budgeting your finances for the purchase of a home, remember that the mortgagee will charge a finder's fee of between one and two per cent of the mortgage amount. Remember, too, that legal fees and stamp duty will also be payable at closing. Often, the mortgagee will incorporate those closing costs in the amount of the mortgage if you ask.

Of course, purchasers have the option of buying a freehold property or a leasehold property. In a future column, my colleague Martin Mitchell will discuss the differences between those two types of property holdings.

Conveyancer Karen Esdaille is a member of the Property Department at Appleby Spurling & Kempe. Copies of Ms Esdaille's columns can be obtained on the Appleby Spurling & Kempe website at www.ask.bm.

This column should not be used as a substitute for professional legal advice.

Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.

BUSINESS BUC