Buying a new home is exciting, but it can also be a complicated process. If you’ve never owned a home before, you may be confused about who’s involved. As you’ll quickly find out, there are many more people involved besides the buyer, the seller and the real estate agent.
And once you factor in the mortgage, there are even more parties to consider. If job titles – like mortgage lender, real estate agent, home inspector and more – are spinning around in your head, don’t worry! We’re here to stop the spin and clear things up for you.
Who Are the Parties to a Mortgage? The Invite List
The mortgage is one of the most important parts of the home buying process, and it’s very important to understand the role everyone plays.
A mortgage agreement exists between you (the buyer) and the lender.
Signing a mortgage agreement means that you agree to pay back the money you owe on a home plus interest. If you don’t or can’t repay, the lender has the right to take control of your home.
There are two main parties involved in the mortgage process:
- Mortgagor: The buyer
- Mortgagee: The lender
It is highly likely that you won’t be able to pay for the entire amount of your home when you purchase it – and no one expects you to.
So when you decide to buy a home, one of the first things you’ll do is head to the bank (or another lending institution) to take out a mortgage.
Once you receive the funds for the mortgage, you officially become a mortgagor (the person who borrows the money to buy the home). Anyone who borrows a mortgage loan is a mortgagor.
The mortgagee is the lender.
The lender may be a bank, a credit union or another financial institution. In the home buying process, the mortgagee is the entity that lends you the money for the home.
The mortgagee has many responsibilities throughout the home buying process, including:
- Knowing mortgage rates: Mortgage rates are set based on market demand
- Originating and issuing mortgages: The lender has to look at your application to make sure you qualify. If you do, they’ll give you the mortgage
- Drafting a secured lien: This is a document that gives the lender the right to seize and sell the home if the borrower (you) fails to make monthly payments (also known as defaulting on a mortgage)
FAQs About Mortgage Parties
While you’ve got a firm grasp on the parties involved in a mortgage, you may still have some questions swirling in your head about the process. Been there – and lived to tell the tale.
Mortgages are complicated, but here are some FAQs to clear things up:
How does a mortgage loan work?
When you head to the bank to take out a mortgage, you need to be prepared to put down at least 3% of the property’s value (aka the down payment).
Now, most financial experts recommend that you put down at least 20%. So if you’re buying a home that costs $200,000, you should try to put down $40,000.
After you make a down payment and receive the loan, you’ll be responsible for paying back the loan in monthly installments over the next 15 to 30 years (plus interest).
How does a mortgagor get a mortgage loan? Ask for an invite
⚡ Newsflash⚡ getting a mortgage loan takes a bit more work than just strolling into a bank and saying you want to apply for a loan. Luckily, the process is fairly straightforward:
- The mortgagee (lender) will typically look at your credit score and credit history first
- If you have a strong credit score, the underwriting process (which involves verifying your income, debt, assets and property details) will begin
- If everything checks out, the mortgagee will approve your loan application!
What is a mortgagee clause?
When you’re applying for a mortgage, you may hear the term “mortgagee clause” thrown around. A mortgagee clause is a contract that protects the lender in the event the property gets damaged.
Other Parties Involved in Buying a House: They Just Turned Up
Worry not! As the buyer, you don’t need to know every little detail and responsibility of the other parties involved.
But a basic understanding of everyone’s role in the home buying process is important. This way, you’ll know who to turn to for certain questions, and you can avoid potential hiccups on your journey to buying a home.
Here are some of the other key players involved in the home buying process:
Most commonly known as the real estate agent, the buyer’s agent is the most important person you’ll have by your side during your home purchasing journey. Your real estate agent will:
- Find the right home at the best price
- Reach out to professionals in their network to help with the buying process
- Use their training to spot potential problems with the home
- Help you negotiate an offer
Your real estate agent is essentially your “partner in crime” throughout the buying process, so be prepared to do some research to find the right one.
While there’s a chance that you’ll never meet the listing agent, they play a significant role in the home buying process. The listing agent works on behalf of the seller. Once you make an offer on a home, your real estate agent (aka the buyer’s agent) will work with the listing agent to negotiate a fair price.
A home inspector visually assesses a home to determine if there are any major problems. As the buyer, you are responsible for choosing the home inspector.
While it’s a good idea to ask your real estate agent for recommendations, you should also do your own research. Once you hire a home inspector, they’ll go through your home, from top to bottom, to make sure everything is up to code. After the inspection, they’ll issue a report for your real estate agent to look over. From there, you and your agent can decide if you want to negotiate a better price.
A home appraisal is an unbiased, professional opinion on the value of the home before closing. A home appraiser performs the appraisal. To form an accurate opinion, they’ll visit your future home and conduct research on the local market.
While you may not have much interaction with the home appraiser, they play a very important role in the buying process. Like the inspector, they could uncover significant problems that could affect your home’s value.
The title process can be a bit confusing because there’s a lot of legal jargon involved (and none of it involves kings, queens or a self-exiled American duchess).
Basically, this is what you need to know:
- A title is a legal term that refers to the ownership of something (in this case, the ownership of a home)
- A title company is responsible for conducting a title search
- A title search is conducted to uncover any problems with the property regarding money and/or ownership (such as unresolved payments from previous owners)
For example, a title company may run a search and find an undiscovered will from the previous owner. If the will says that the owner wished to leave the home to relatives, you may not have the legal right to purchase the home.
But don’t worry. Most of the time, title companies don’t find anything in their search. If this is the case, they will issue you and your lender a title insurance policy. If someone down the line claims they own the rights to the property, your title insurance policy will protect you and your lender.
Your home is an extremely valuable asset. You’ll want to make sure you protect it with homeowners insurance.
To buy homeowners insurance, you’ll work with an insurance company. You’ll want to spend some time researching policies to make sure you have adequate protection. For example, if you live in an area prone to flooding, you’ll want to find a company that offers coverage for weather-related damage.
Urgh, taxes, amirite? Not everyone consults with a tax advisor before buying a home, but it can be very helpful. A tax advisor can offer advice on:
- Purchasing a home with gifted funds
- Using business funds to make a down payment
- Investment property purchases
- The tax implications of buying a home
While your real estate agent can give you guidance on some of the above, a tax advisor can provide you with sound legal advice.
Real estate attorney
Like tax advisors, real estate attorneys aren’t always involved in the home buying process. However, some states do require real estate attorneys, including:
- New York
- North Carolina
- South Carolina
The real estate attorney’s job is to protect you from committing fraud.
To do this, they’ll explain all of the legal paperwork to you when you’re closing on a home. They may also perform the title search in place of the title company.
Notary signing agents
The notary signing agent acts as an impartial witness when you’re signing your closing documents. Their main job is to ensure everyone understands what documents they’re signing.
Once everything is signed, the agent will notarize the documents with their signature, seal and notary commission license, so the state can accept them into the public record.
‘Party’ Time: Let the Home Buying Process Begin
As you can see, there are many parties involved when taking out a mortgage and buying a home. If you’re ever feeling confused about who’s who during the process, you know where to find this post!