As you embark on the process of buying a house, there are many tasks you’ll need to complete before you can close and move into your new home. One of the most important things you’ll have to do is get a home loan. A key figure in this process is the mortgagee. Let’s take some time today to explain what a mortgagee is and talk about their roles and responsibilities in the home buying process.
Who Is The Mortgagee?
In a real estate transaction, the mortgagee is a type of lender that lends money to a borrower so that they can purchase real estate. While the lender is known as the mortgagee, the borrow is referred to as the mortgagor.
Mortgagee Vs. Mortgagor
While their names sound similar, the mortgagee and mortgagor are completely different entities in a real estate transaction. As previously mentioned, the mortgagee is the lender offering the home loan, while the mortgagor is the party borrowing the loan to purchase the house.
In a real estate transaction, the mortgagee gives the home loan to the mortgagor who, as a result, offers the title of the property purchased to the mortgagee as collateral. The mortgagor becomes obligated to meet monthly payments and stay on top of the loan. In the event that the mortgagor is unable to keep up with payments and defaults on the loan, the mortgagee can foreclose the property.
As the lender in a real estate transaction, the mortgagee has many responsibilities. Let’s go more in depth to cover some of the responsibilities the mortgagee has in a real estate relationship with a mortgagor.
One of the main responsibilities of mortgagees is mortgage origination. Mortgagees are involved in this process of issuing mortgage loans and setting their rates for borrowers. When taking out a mortgage loan, homeowners use their property or real estate as collateral. They must also submit financial documentation to the mortgage lender who then determines whether or not they are eligible for the type of loan and the loan’s interest rate. Mortgage origination is a subset of loan origination and involves many steps which include reviewing the borrower’s application, processing the loan, underwriting the loan, and then closing on the loan.
Creating Perfected Liens
A perfected lien is a type of lien that is filed with a specific filing agent who ensures that interest is secured in an asset binding. Liens are beneficial for the mortgagee because they offer more protection with the loans and the lending contract. Perfected liens can also help a mortgagee in the event that a property is foreclosed. For example, a perfected lien shows documentation that a creditor has the ability to seize the property and sell the house.
Another responsibility mortgagees take seriously is being ethical and doing the right thing. One aspect of this includes guiding mortgagors throughout the home buying and mortgage loan approval processes. It’s important that lenders make sure home buyers can actually afford a property so that financial problems don’t occur during loan approval and in the future. Mortgagees also help home buyers qualify properly by looking at the right factors and being non-discriminatory toward borrowers.
Mortgagees and Insurance Providers
As the mortgage lender, mortgagees work closely with insurance providers to make sure that the property remains protected. There are many types of insurance that provide coverage for a property. Some of the most common types of insurance on a mortgaged property are homeowners insurance and flood insurance.
Mortgagees require that mortgagors purchase a homeowners insurance policy that provides coverage for property damage so that their investment is protected and they don’t lose money. If the property were to become damaged, the mortgagee could potentially suffer financially as a result. But with an insurance policy, both the mortgagee and mortgagor are protected.
A borrower can have a mortgagee clause in their insurance policy that states that if the property were to be damaged, the insurance company would make payments to the mortgagee. This means that the clause would let the loss be payable to the lender even though it’s a part of the insurance policy. The clause also protects lenders in the case that the insurance company cancels or voids the insurance policy. Ultimately, the mortgagee clause has many protections for the property, and like a perfected lien, it can also serve to protect the mortgagee.
The Bottom Line
By now, you’ve been able to learn more about the roles and responsibilities of a mortgagee and how they are involved with the home loan and mortgage process. As you continue your home buying journey, stay informed and educated by checking out more articles in the Quicken Loans® Learning Center.