What Is A Mortgagor?
If you’re buying a house, you’ll likely need to take out a loan. A loan to buy a home is called a mortgage, and it’s typically paid back in monthly installments over 15 – 30 years. The two main entities involved in the lending process are called the mortgagor and the mortgagee.
Let’s take a closer look at what a mortgagor is and their responsibilities in the home buying process.
A mortgagor is a person who takes out a mortgage loan from a bank or financial institution. Typically, they will make a down payment on the property, though it’s not always required. The rest of the purchase price is covered by a mortgage.
A mortgage closes the gap between what the home costs and the down payment a borrower contributes to pay for the home. When the borrower receives the funds to cover the balance, they become a mortgagor.
Who Are The Mortgagor And Mortgagee?
Most people finance their purchase of real estate through a mortgage. The two main parties involved in this financial agreement are the mortgagor and the mortgagee.
The mortgagor – often referred to as the borrower or client – borrows money to pay for a home. A mortgagee is an entity that lends the mortgagor money. The entity is typically referred to as the lender.
Mortgagor Vs. Mortgagee
The mortgagee sets the loan terms and is responsible for communicating the terms of the mortgage clearly to the mortgagor. The terms will include the length of the loan, payment due dates, loan amount, interest rate and whether mortgage insurance is required. The mortgagee will make sure that they receive payment. And they have the right to seize the property if the mortgagor stops paying.
After securing the loan, the mortgagor will simply make monthly mortgage payments throughout the life of the loan. Most loans are paid monthly, but some real estate payments are made quarterly. If the mortgagor fails to meet the terms of the mortgage, the mortgagee has the right to put the property into foreclosure.
How Do Mortgages Work?
A mortgage is a home loan that helps you purchase a property. The mortgagor is expected to put a specified amount down on a home, and the mortgage covers the rest of the cost of the property. The minimum down payment is typically 3% – 5% of the total cost of the property. Some loans, including VA loans, don’t require a down payment.
To qualify for a loan, you must prove that you will be able to pay back the remaining balance. A mortgagee will take several factors into consideration, including your:
- Credit score: Most mortgagees require a credit score of 580 or higher for FHA and VA loans. Conventional loans typically require a 620 qualifying credit score. Your credit score is impacted by your credit history, including your credit accounts, ability to make on-time payments and more.
- Debt-to-income ratio: Your debt-to-income (DTI) ratio is the total amount of debt payments you are required to make every month compared to your monthly income. If you have a high DTI ratio, you may not qualify for higher loan amounts.
- Income: You must be able to afford your mortgage payments. During underwriting, the mortgagee will assess your income, assets and the details of the real property to confirm your ability to pay back the loan.
In exchange for the mortgage, the lender holds a lien on the mortgaged property as collateral. The mortgagor is expected to make regular payments on the loan until the property is paid off. The exchange of collateral for money is called a secured loan.
The mortgagor receives the deed to their home after paying off the mortgage in full. Most people choose a mortgage term of 15, 20 or 30 years. You may have more term options depending on the type of loan you get.
Equity Of Redemption
If a mortgagor stops paying on their loan or gets behind on their payments, the property may go into foreclosure. If this occurs, the mortgagor can exercise the equity of redemption. The equity of redemption is the homeowner’s right to buy their property even when it’s in foreclosure.
In other words, the homeowner can catch up on their payments and pay the total amount due in full. Once they have paid up to their current expected payment, they will be out of the foreclosure process.
Equity of redemption is important because it allows borrowers to recover from the potential financial detriments of foreclosure. If the mortgagor does not exercise the equity of redemption, the mortgagee has the right to sell the collateral to try to recuperate their investment. Legal rights around the timing of redemption vary from state to state, so talk to an attorney if you have questions.
A mortgagee clause also ensures that the mortgagee gets paid despite any property damage caused by the mortgagor.
The Bottom Line: Mortgagors Are The Borrowers
Mortgagors receive a loan from a mortgagee in exchange for a lien on the deed to a home, allowing the property to be used as collateral. The mortgagor is expected to pay back the loan in installments over the life of the loan.
If the mortgagor fails to make the expected payments, the mortgagee can take possession of the property and start foreclosure proceedings. Fortunately, the mortgagor can prevent foreclosure by catching up on missed payments and paying the balance in full. If they fail to do so, the lender can sell the property to recoup the money they lent the mortgagor.
If you want to learn more about the home buying journey, read about the mortgage loan process, and the nine steps you can take to apply for initial approval.