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 is typically paid back in monthly installments over 15 to 30 years. The two main entities involved in the lending process are called the mortgagor and the mortgagee.
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 that closes the gap between what the home costs and the down payment they are contributing to pay for the home. When they receive the funds to cover the balance, they become a mortgagor.
Who Is 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 a mortgagor and a mortgagee.
A mortgagor is someone who borrows money to pay for their home. The mortgagor is often referred to as the borrower or client. A mortgagee is an entity that lends the mortgagor money. This entity is typically referred to as the lender.
Mortgagor Vs. Mortgagee
The mortgagee will set the loan terms. 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 has the right to seize the property if the mortgagor stops paying. The mortgagee is responsible for communicating the terms of the mortgage clearly to the mortgagor.
After securing the loan, the mortgagor will simply make monthly mortgage payments throughout the life of the loan. Most loans are to be paid monthly, but some real estate payments are made quarterly. If they fail 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 a person purchase a property. The mortgagor is expected to put a specified amount down on a home, and the mortgage will cover the rest of the cost of the property. The minimum down payment is typically at least 3% – 5% of the total cost of the property. Some mortgages, 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:
- 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 lines of credit, ability to make on-time payments and more.
- Debt-to-income ratio: Your debt-to-income ratio is the total amount of debt payments you are required to make per month compared to your monthly income. If you have a high debt-to-income ratio, you may not qualify for higher loan amounts.
- Income: You must be able to afford your mortgage payments. In underwriting, the mortgagee will assess your income, assets and the details of the real property to ensure that you will be able to pay back your loan.
In exchange for the mortgage, the lender holds the lien on the mortgaged property as collateral. The mortgagor is expected to make regular payments on the loan until the property is paid off. This exchange of collateral for money is called a secured loan.
Mortgagees will receive 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.
If a mortgagor stops paying on their loan or gets behind on their payments, it may go into foreclosure. If this is the case, then they will have the right of Equity of Redemption. This is the right of the homeowner to buy their property even when it is in 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. However, if the property is damaged, the mortgagee clause ensures that the mortgagee is still paid, despite any damages caused by the mortgagor. Legal rights around the timing of redemption vary from state to state, so talk to an attorney if you have questions.
In other words, the borrower can catch up on their payments and pay the complete 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.
The Bottom Line
A mortgagor is a borrower in real estate. They receive a loan from a mortgagee in exchange for a lien on the deed to the home, allowing the property to be used as collateral. The mortgagor is expected to pay back the loan in installments over the term of the loan.
If the mortgagor fails to make the expected payments, the mortgagee can put the piece of real estate into foreclosure. The mortgagor can buy themselves out of foreclosure. If they fail to do so, the lender can sell the property to get the money they originally lent to the mortgagor.
If you have further questions about homeownership, or the types of loans available to you, you can apply online or give us a call at (888) 452-0335. We’ll help you evaluate your options.