What Is A Mortgagor?
If you’re buying a house, you’ll likely need to take out a mortgage that you pay back in installments over time. The act of taking out a home loan makes you the mortgagor, commonly referred to as the borrower, on a mortgage.
The two main entities involved in the lending process are called the mortgagor (the borrower) and the mortgagee (the lender). Let’s take a closer look at what a mortgagor is and their responsibilities in the home buying process.
Mortgagor Definition
A mortgagor is a person who takes out a mortgage loan from a bank or financial institution. Typically, the homeowner 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. In exchange, the title for the home becomes collateral for the loan.
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Who Is The Mortgagor Vs. The Mortgagee?
Most people finance their real estate purchase through a mortgage. This financial agreement involves two main parties, 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 a bank, financial institution or other entity that provides the financing. This party is typically referred to as the lender.
Now that you know the basics, let’s take a closer look at the relationship between these two roles.
Mortgagor
As a mortgagor, you’ll have certain responsibilities. Here’s what you can expect:
- Make mortgage payments: After securing the loan, the mortgagor will make monthly mortgage payments throughout the life of the loan.
- Pay additional fees: Mortgagors will need to pay fees for homeowners insurance and property taxes. These fees are often paid into an escrow account each month and distributed later.
- Communicate with the mortgagee: Should an urgent matter arise; the mortgagor is responsible for communicating any changes to their lender.
Mortgagee
The mortgagee has responsibilities as well. Here are some duties you can expect from your lender or mortgagee:
- Set the loan terms: The mortgagee is responsible for clearly communicating the mortgage terms 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.
- Collect payments: The mortgagee is responsible for collecting monthly mortgage payments. They need to facilitate a payment method and ensure they receive payment. They also hold a lien on the property and have the right to seize the property if the mortgagor stops paying.
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How Do Mortgages Work?
A mortgage is a home loan that allows you to purchase a property. The mortgagor is generally expected to put a specified amount down on a home, and the mortgage covers the rest of the property’s cost. The minimum down payment is typically 3% – 5% of the total cost of the property. Some loans, including VA loans, which are backed by the U.S. Department of Veterans Affairs, don’t require a down payment.
Mortgage Qualifications
To qualify for a loan, you need to prove you can pay back the remaining balance. A mortgagee will consider several factors, including:
- Credit score: Most mortgagees require a credit score of 580 or higher to qualify for Federal Housing Administration 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 and ability to make on-time payments.
- Debt-to-income ratio: Your debt-to-income ratio is the total amount of debt you must pay every month compared to your monthly income. If you have a high DTI ratio, you may not qualify for higher loan amounts.
- Income: Your lender will check to be sure you can 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.
Repayment Terms
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
Equity of redemption is the homeowner’s right to buy their property even when it’s in foreclosure. 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 their equity of redemption.
This means the homeowner can catch up on their payments and pay the total amount due in full. They’ll be out of the foreclosure process once they’re up to date on all current expected payments.
Equity of redemption is important because it allows borrowers to recover their home and financial assets when faced with potential foreclosure proceedings. If the mortgagor doesn’t 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.
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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.
