Homeownership can be a daunting process. It’s a big step into adulthood for a first time mortgagor. So, before navigating the role of a mortgagor, we need to understand what a mortgage is.
What’s a mortgage?
A mortgage is a loan that helps a person purchase a piece of property. This type of loan is typically used to cover the cost of a home. Yet, it's also used to finance offices or other real estate property.
Taking out a loan for a house is a necessity for most prospective buyers. This is because it prevents you from having to pay out of pocket for the total cost of your home. As a result, the majority of American homeowners use mortgage financing.
So, when you buy a house, it’s likely you’ll need to finance your purchase through a mortgage. Your home loan will close the gap between the total cost of your house and your down payment. Then, you’ll make monthly installments to pay your mortgage back over around 15 to 30 years. The length of time depends on the terms of your loan.
So a mortgage is just borrowing money?
Essentially, but think of it this way: Let’s say that your friend Tom asks you for 300 bucks. You could turn down his request, which might be a good option if Tom has a reputation for being unreliable. Conversely, you could decide to lend him the 300 bucks with the hope that he’ll pay you back. But, the problem with taking this route is the word “hope.” You need more than hope to ensure you’ll get your money back.
This is where collateral comes in. Now, for this hypothetical, let’s pretend Tom’s using the 300 dollars for a brand new pair of running shoes. The shoes can be collateral, so if Tom fails to pay you back, you’ll get his shoes.
In the mortgage process, the house functions as collateral to the lender. This gives the lender security in case the borrower cannot pay the loan back.
Mortgagor vs Mortgage
A mortgage cannot be issued without two parties: the mortgagor and the mortgagee.
What is a mortgagor?
The mortgagor is the person or entity who borrows money to buy a piece of real estate. So, if you’re wondering what the difference is between a borrower and a mortgagor, they’re synonymous. Therefore, they’ll be used interchangeably throughout this article.
Upon approval, the borrower will receive a loan from a lender to buy a house. If a borrower’s sole income and credit history don’t qualify him for a mortgage, he may need another person to cosign the loan. So, what is a mortgagor that cosigns a mortgage?
What is an accommodation mortgagor?
An accommodation mortgagor, or guarantor, is someone who cosigns a mortgage. They do this as a way to guarantee credit liability for the borrower. To define an accommodation mortgagor, we need to go over what an accommodation loan is. This type of loan may also be called an accommodation endorsement or bill. It lets the guarantor add strength to the creditworthiness of the mortgagor. This means that if the borrower fails to repay the loan, the guarantor will be responsible to pay the debt.
What is a mortgagee?
It’s tough to explain what a mortgagor is without mentioning the mortgagee. This is because both parties work together to find a loan that best fits the situation at hand.
The difference between the mortgagor and the mortgagee is that one is a borrower, and one is a lender. We’ve already gone over who the borrower is, so here we’ll explain the role of the lender. The lender is also called the mortgagee.
The mortgagee is the party who offers the loan, i.e., lends the money, so the borrower can purchase a home. The mortgagee could be one person, a bank, or a mortgage company like NorthPort Funding.
How does the mortgage process work?
When someone wants to buy a home, they go to a lender to ask for a loan. The mortgagor applies for the home loan by submitting a credit application. Typically, the borrower will make a down payment as well.
The lender will review the borrower’s information to ensure they meet all qualifications. The information examined includes the mortgagor’s credit score, debt, and income. The mortgagee uses this data to assess whether the borrower will be reliable to repay the loan.
Once the agreement is signed by both parties, the borrower begins making payments on the loan.
What is a mortgagor’s affidavit?
A mortgagor's affidavit is a written statement used in real estate transactions. The statement insures the loan and states whether the borrower will occupy the property as a primary residence.
The borrower signs the affidavit at the time of closing. Signing confirms that no significant changes in their finances or condition of the property have occurred.
Responsibilities of the parties
Both the mortgagor and the mortgagee have unique responsibilities throughout the mortgage process.
Duties carried out by the mortgagor
The mortgagor is the one who’s responsible for making regular payments, plus interest over the loan term. The borrower is also required to pledge the title of the property as collateral. This type of exchange (collateral for money) is referred to as a secured loan in real estate. In a mortgage agreement, the borrower is liable for adhering to the contract terms throughout the life of the loan.
Duties carried out by the mortgagee
The mortgagee is responsible for determining the terms of the loan for the mortgagor to abide by. Lenders come up with specific terms by measuring the financial risk of the borrower. Then, they use their assessment to develop the loan accordingly. A few terms of the mortgage loan include payment due dates, the length of the loan, and the interest rate.
The lender also manages the title rights to the property that’s used as real estate collateral.
Remember our friend Tom? In the example, he asked for 300 dollars to buy a new pair of shoes. Now, 300 dollars may not be worth signing a contract over. But, if Tom wanted more money, perhaps we’d (as the lender) find drawing out some terms to be worth our while.
The borrower and lender each have rights throughout the mortgage process.
Rights of the mortgagor
These are a few rights entitled to the borrower of the mortgage loan.
- The right to know the reason your loan request may have been denied.
- The right to a Good Faith Estimate of the total loan and settlement costs before signing.
- The right to know what charges aren’t refundable should you need to cancel the agreement.
One of the most important rights that the borrower has is called Equity of Redemption.
Equity of Redemption
The right of the mortgagor to buy their property when it’s in foreclosure is known as Equity of Redemption. The borrower may want to buy themselves out of foreclosure if they fall behind on payments. This is how they can recover from any potential financial debts.
Rights of the mortgagee
Lenders have rights to the home until the borrower pays off the entire mortgage. These rights function to protect them in case the borrower fails to repay the loan.
Foreclosure is the process where the mortgagee attempts to recover the payment owed on a defaulted loan. The lender may take ownership of the mortgaged property and then sell it.
Sue for mortgage money
If the mortgagor violates the terms or provisions of the loan, the lender has the right to sue. For instance, the mortgagee could sue if the property is destroyed from the borrower's failure to provide proper security.
Are you ready to take the first step to become a homeowner? Becoming a mortgagor can be overwhelming if you don’t have someone in your corner to guide you. At NorthPort Funding, we’ll work hard to get you the best deal on a mortgage loan that’s right for you. Contact us today!