Who Are The Parties To A Mortgage?
Finalizing your mortgage is the last hurdle you’ll face before receiving the keys to your new home. That’s exciting stuff! But in the final step, you might be wondering, who are the parties to a mortgage?
Let’s take a closer look at all of the parties involved in a mortgage, so you know what to expect along the way.
The Two Main Parties To A Mortgage
There are always two main parties involved in a mortgage: the mortgagor and the mortgagee. The mortgagor is the one taking out the mortgage, while the mortgagee is the lender or institution issuing the home loan.
Here’s what you need to know about the two main mortgage parties.
Mortgagor (The Buyer)
It all starts with you – the buyer, otherwise known as the mortgagor or borrower. Before you approach a lender to begin the mortgage process, there are several things to consider:
- What kind of home and location would best suit your needs?
- How much could you comfortably pay on a mortgage loan each month?
- How long would you want to live in the home?
Knowing these things can help the process go more smoothly.
Your lender will require a lot of documents and information from you when you apply for a mortgage. Some of these include proof of income documents (paystubs, W-2s, etc.), bank statements and tax returns. If you’re buying a house with someone else, such as a spouse or family member, make sure this person is prepared to apply for the mortgage and has financial information readily available, as well.
Finally, if there are any events coming up that could impact your income or credit score, bring them to your lender’s attention. Examples include getting a new job, opening or closing a credit account and purchasing a vehicle.
Mortgagee (The Lender)
The transaction cannot happen without a mortgagee, a lender that facilitates a mortgage for borrowers. Mortgagees help potential borrowers with a preapproval when the borrower begins to search for a home. This preapproval helps the borrower know what size home loan they might be able to obtain.
Once the borrower has selected a home, the lender will begin the origination process and ultimately issue the mortgage.
As a borrower, it’s important to know that you have plenty of choices. Take some time to shop around for the best rates and terms before choosing a lender.
How Many Other Parties Does A Mortgage Involve?
Now you know who the two main parties to a mortgage are, but there are more parties behind the scenes that you should know.
When buying a house, there is an entire supporting cast of characters to ensure a smooth process. Here’s what you should know about each.
Real Estate Agent
Because finding a home and making an offer can be a complex process, it’s helpful to have a trained professional by your side. That’s where a real estate agent comes in handy.
Real estate agents are licensed in negotiating sales and purchases. They’re also the procuring cause in real estate transactions, meaning their actions resulted in the buyer purchasing the property. When you buy a home, there are typically two agents involved:
- Buyer’s agent: A buyer’s agent can help you browse listings, schedule viewings, prepare an offer, negotiate the price and guide you through the final steps of closing on the loan.
- Listing agent: A listing agent helps sellers create an enticing listing to elicit the highest price.
Most buyers and sellers choose to hire their own agents to ensure that their best interests are kept at the forefront of any discussions.
Before you can close your loan, an underwriter must approve it. An underwriter reviews your mortgage application, including your credit history, income and ability to repay the loan.
The underwriter also reviews the home appraisal, completed by a third-party appraiser, then places a value on the home you plan to buy. Once the underwriter determines your application meets the guidelines, your loan will be approved for closing.
As the buyer, it’s in your best interest to hire an inspector to evaluate the home you’re looking to purchase. The inspector will perform a detailed check of the home’s construction and compile a list of anything needing repair or replacement. This includes electrical, plumbing, and heating and cooling systems.
The inspector will also evaluate structural components of the home such as doors, windows, walls and the roof. The home inspection results can (and should) play a part in determining the home’s final selling price.
The inspector works directly with you, not with your lender or real estate agent. Make sure you request to be at the property during the inspection so the inspector can address any questions or concerns you may have.
Finally, get the inspection report in writing. The inspection results will determine whether you decrease your offer amount, ask the seller to make repairs before continuing with the sale or back out of the sale altogether.
Before a lender decides how much you can borrow to buy a home, an appraiser must determine the home’s value. While your lender will schedule the home appraisal, by law, it will be conducted by a third party who has no interest in the outcome. Lenders typically add the appraisal fee to the overall closing costs.
The appraiser doesn’t represent any particular person or company involved in the mortgage process. However, the appraisal has to meet specific requirements set by the lender. These requirements are expressed in the purchase contract and vary across loan programs. Several factors play a role in determining a home’s appraised value, including:
- The home’s size, condition and market value
- The general condition of the neighborhood
- Home sales in the surrounding area
Once an appraisal is complete, the appraiser will report the information to your lender and set a value on the home.
Your appraisal plays an important role in closing your loan. If the appraisal value is lower than the amount you’re offering, the lender will not approve the loan.
For example, say you offer $200,000 with a $10,000 down payment, but the home is appraised at $180,000. To get your lender’s approval, you would either need to put more money down or negotiate the price to match the appraised value.
Once your offer on a home has been accepted, you’ll approach the closing phase of the mortgage process. However, before you close on your new home, a title company will need to verify that the seller is the property’s current and rightful owner.
A title is the legal right for someone to own property. A title’s documentation provides information such as a property’s ownership history, boundary lines and permitted use. These records are filed with the local government so an official record of the home’s rightful owner can be accessed whenever the home is bought and sold.
The title agent will review property records to be sure that no one else can claim ownership of the home you’re about to purchase.
Once the property’s title is verified, the agent can issue title insurance. This can protect you and your lender against any claims or legal fees that result from disputes about who owns the home.
Homeowners Insurance Company
If you are taking out a mortgage to obtain your home, you will be required to purchase homeowners insurance. You should shop around to receive quotes from various homeowners insurance companies to find the best rate.
Real Estate Attorney
A real estate attorney is not required for most buyers, but it might be a requirement in your state. Even if you aren’t required to hire a real estate attorney, the benefits could be worth the expense if you are dealing with a tricky closing.
Real estate attorneys can provide legal advice to guide you through any closing. But their advice is especially helpful if you are buying a short sale, foreclosure property or a property with easements.
The home closing process is filled with tax savings opportunities. But you need to know where to look. That’s when a tax advisor can step in to help. A tax advisor can ensure that your closing process is completed in the most tax-efficient manner.
If you have questions about the tax implications of your closing, reach out to a tax advisor.
Notary Signing Agent
Although the presence of a notary signing agent may seem like another fee, their seal of approval keeps questions of fraud or duress out of your property’s paperwork.
When it’s time to close on your home, a closing agent will facilitate the transaction. This agent acts as a neutral third party between you and the seller and typically works with the title company.
The title agent’s attendance at closing ensures:
- All required legal documents are explained and signed.
- The payment is transferred to the seller.
- The property is transferred to the buyer.
- The sale of the home is properly recorded and filed with county records.
Because title companies often maintain the buyer’s escrow account, a closing agent can also be referred to as an “escrow agent.” After the purchase contract is signed, the agent accepts money from the buyer and the buyer’s lender. These funds are then transferred to an escrow account and disbursed according to the purchase contract.
Without the seller, the entire process could not begin. The seller is considered the vendor when buying a house. If the property is for sale, then the seller will have to agree to the price.
Plus, sellers have the power to negotiate the terms of the deal. For example, the seller may agree to cover the cost of a necessary repair.
Other Potential Parties
Although many home closing processes are straightforward, sometimes the home closing process is a little bit different. That might be due to the condition of the property or the local laws of the area.
Depending on the situation, you might have home contractors or pest inspectors involved in the closing process to verify details about the property. You may also have local government officials involved if there are questions surrounding the property’s legal details.
Another party that you may want involved is a home buying specialist through Rocket Mortgage®. These individuals are armed with all of the information you’ll need for a smooth home buying process.
The Bottom Line: Knowing The Parties To A Mortgage Will Make The Process Smoother
There are many parties involved in a mortgage. Although the two most important parties are the mortgagor and the mortgagee, each supporting role has an important part to play. Before you start the home buying process, familiarize yourself with the parties involved to make the journey as smooth as possible. Once you’re an expert on the ins and outs of mortgage parties, you’ll be ready to apply for a mortgage.