money Mortgagor vs. Mortgagee: Key Differences
Buying a home is a complex endeavor, especially if it's your first time. The best way to navigate the process is to understand all the jargon within the process. For example, the mortgagee is the lender, while the mortgagor is the borrower. Becoming familiar with the responsibilities of both can make going through the mortgage process much easier. Consider working with a financial advisor as you go through the home-buying process.
Mortgagor vs. Mortgagee: What's the Difference?
When a homebuyer needs a mortgage to purchase a new home, they are known as a mortgagor. In other words, they are the person borrowing funds from a financial institution like a bank. The mortgagor can be a single person or a group of people, depending on who is applying for the loan.
Whereas the mortgagee is the institution lending the funds to the mortgagor to finance the purchase of a home or refinance their current mortgage. A mortgagee can be a large bank, credit union, community bank, or other lending institution.
The mortgagor and mortgagee decide on the installment payment structure and how it will work. These payments will include interest and other applicable fees. The mortgagee outlines the loan terms and other clauses of the financing contract.
Because the home is used as collateral for the loan, the mortgagee has the right to foreclose on the property. In other words, the mortgagee can take the home back if the mortgagor defaults on the loan. So, if the mortgagor doesn't make payments on the mortgage, the mortgagee can take the home away from them and sell it.
Mortgagor vs. Mortgagee: Key Differences Mortgagor Mortgagee The party purchasing the home The institution providing the home loan The party making installment payments, interest payment, and putting up the home as a collateral asset The institution receiving the installment payments, interest accrued, and collateral asset in case of default The party who must accept financing terms The decider of financing terms Provides all documentation proving loan eligibility Loan document preparer Forfeits property ownership during the length of the mortgage until payments are paid in full Holds the property ownership during the length of the mortgage until payments are fulfilled Must meet all deadlines and make on-time installment payments The decider of the payment intervals and tenure that repayment needs to be made Must concede to mortgagee's choice if they default on the loan Holds the legal right to sell the home or property if mortgagor defaults on the loan Responsibilities of a Mortgagor
The mortgagor has more responsibilities than just paying off the loan, however. First, they must complete the application, providing all of the documentation the mortgagee requires. Then, once they agree to the terms laid out by the mortgagee, they must make the agreed-upon monthly payments of principal and interest to keep the loan in good standing.
Required to Submit an Application
Like other types of loans, the mortgage terms are decided on the borrower's (mortgagor) credit and the lender's underwriting standards. Some of the factors lenders consider when determining the terms of the loan include:
Credit score
Credit history
Housing expense ratio
Must Agree to Contract Terms
If the mortgagee approves the application, the mortgagor is given a set of terms they must agree to proceed with finalizing the loan. The terms include the interest rate and duration of the loan. Also, the mortgagor must agree to make the monthly payments to keep within good standing. The contract may also include assets for title ownership and putting a lien on the property for collateral.
Additionally, it may lay out the requirements for sustaining the monthly payments and stipulations surrounding missing payments. For example, every lender may have a different number of late payments they allow before the mortgagee can put a lien on the property.
Responsibilities of a Mortgagee
The mortgagee is the lender in the purchasing transaction. This means they are in charge of the entire process. Therefore, the mortgagee has a list of responsibilities, including the following.
Mortgage Origination
Mortgage origination is one of the primary responsibilities of the mortgagee. This mortgage origination process involves several steps: reviewing the mortgagor's application and financials, issuing the mortgage, underwriting the mortgage, and closing the mortgage.
During the review and underwriting process, the mortgagee decides on the rates and terms for mortgagors.
The mortgagor submits financial documentation such as pay stubs or W2s to the mortgagee to review. The financial documents will determine if the mortgagor meets the mortgagee's criteria for loan approval. It will also determine the interest rate the mortgagor can qualify for. On top of the financial documents, the mortgagor puts their home up for collateral. That way, if they default on the loan, the mortgagee can foreclose the property.
Establishing Perfect Liens
Another responsibility of the mortgagee is to create a perfect lien, which binds the contract with an asset. A specific filing agent ensures interest in the property is secured with a lien on the property. A perfect lien benefits the mortgagee by protecting them from loan default.
This also protects the mortgagor if foreclosure occurs. The lien would document that the lender can repossess the home and sell it to recuperate losses.
Directing Mortgagors
To ensure mortgagees uphold their ethics, it's their responsibility to guide homebuyers through the loan process. Doing so is essential to ensure the buyer can afford their loan and property so that their financial situation doesn't cause any issues during the approval process or during the loan term.
For example, let's say the mortgagee approves a homebuyer who couldn't afford the loan payments. In this case, it would put the mortgagor in a sticky financial situation and potentially cause them to default on loan. Then, the mortgagee could foreclose the property, which is time-consuming and costly.
Bottom Line
Buying a home is a detailed process with many aspects. But, usually, when you finance your home with a mortgage, there are two parties: the mortgagor (the homebuyer) and the mortgagee (the lender). Each party has responsibilities to ensure the process is seamless. Overall, you and your lender will work together to ensure you both meet your end of the contract. So, as you continue on the path towards homeownership, it's crucial to keep growing your knowledge.
Tips on Buying a Home
Buying a home can be complex. One way to minimize unnecessary complexity is by talking to a financial advisor about how it fits into your financial plan first. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
Use SmartAsset's mortgage comparison tool to compare mortgage rates from top lenders and find the one that best suits your needs.
Banking on the funds you have for retirement isn't always the best way to go. Having a budget and researching options for your mortgage ahead of time is essential. This way you know how much you can afford for a house.
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