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So, you want to buy your first home, but you don’t have the cash to pay for it in full. Allow us to introduce you to the mortgage loan. A lender (aka a mortgagee) lends you the money you need to buy the home, and you pay the money back according to the terms you both agreed on. 🤝
According to the U.S. Census Bureau, approximately 48.6 million Americans took out a mortgage in 2019, so you’re in good company!
There are many mortgagees out there that can help you secure a loan. Whether you’re fluent in mortgage-speak or not, it’s important to understand who the mortgagee is and how they fit into the home buying process.
The legal definition of a mortgagee is the provider of a home loan, or other interest, given in exchange for the security interest. Let’s break this down into nonlegal terms, shall we?
A mortgage contract is an agreement that a lender and a borrower enter into. It transfers an interest (or claim) in land or property from one party to another as collateral for the loan.
When a lender gives you money to buy property, they hold the right to the property as collateral for the money they provided. Basically, you don’t own your home until you make your last mortgage payment and all other loan conditions (if any) have been met.
In short, the mortgagee lends you money. You buy a property. The mortgagee holds the claim to the property until you pay off the loan.
Mortgagee vs. Mortgagor
You may be thinking, “Cool, if there’s a special name for a mortgage lender, there must be a special name for the person borrowing the money?” Of course there is! As you probably already know, the mortgage world comes with a glossary of new and exciting terminology.
- The mortgagee is the entity (bank, credit union, etc.) or individual lending the money to purchase real estate
- The mortgagor is the person(s) borrowing money to purchase real estate
What Does a Mortgagee Do?
Mortgagees have many responsibilities. Here are some of the main ones.
Originates a mortgage
When you submit a loan application, the mortgagee will check your eligibility for the home loan you want. Origination is a fancy way of saying that a lender is reviewing your information and preparing your mortgage, which you’ll get if you’re approved. ✅
Sets mortgage rates
While lenders set mortgage rates for home loans, the rates are based on demand, which is influenced by the market, economic conditions and standard federal benchmarks.
Secures perfected liens
First off, what’s a lien, right? A lien is a claim to a property that’s being used as collateral to satisfy a debt. Whoever holds the lien – usually a lender – has the right to foreclose on the property (aka repossess and sell it) if the borrower stops making mortgage payments.
If there is a lien on your home, you can’t sell it without the consent of the lien holder.
When a lender “perfects” a lien, it means the lien (or claim) has been legally recorded, giving public notice of its existence.
A perfected lien makes it easier for a mortgagee to foreclose on a property because it proves that they have the rights to the property. Because it would be very hard to argue against a perfected lien in court, it offers the mortgagee extra protection.
Guides the mortgagor
Mortgagees guide mortgagors through the home buying process and the process of securing a home loan. A good mortgagee will be ethical. They will make sure you can afford the property, which will hopefully reduce the risk of financial hiccups during the loan approval process.
Keeping your home buying budget in mind, your mortgagee should be looking at loans that match your financial situation and goals.
If you’re the sentimental type, think of the mortgagee as a kind of fairy mortgage-person that helps you get ready for the home buyers’ ball! 🪄 👑
What Are the Mortgagor’s Responsibilities?
As a mortgagor, it’s important for you to feel comfortable and trust your mortgagee. You are, after all, probably going to be working with them until you pay off your loan.
Some mortgagor responsibilities include:
- Confirming with the lender and/or mortgage broker that you’re applying for the right loan for your situation.
- Understanding what mortgage terms are options for you and your current financial situation. These will impact which lender you choose, your mortgage contract (maximum interest rate, the loan’s length, etc.) and how your monthly payments are calculated.
- Speaking up when you have questions or concerns about your loan. Even the best mortgagees can make mistakes. If something seems off, don’t be afraid to check in with your mortgagee.
- Submitting all required paperwork, like bank statements, W-2s and tax returns and any other information on your finances.
- Making on-time monthly payments and completing any obligations set in the mortgage contract. Remember, when you miss payments (aka default on the loan), your mortgagee can repossess your property.
What Is a Mortgagee Clause?
A mortgagee clause is a provision that gets added to your homeowners insurance policy.
The clause requires the insurer to pay the mortgagee when any claims covered by the insurance policy are made, which protects the mortgagee from financial losses due to property damage.
While it is your policy, the insurance company will pay the mortgagee. The clause covers damages for things that are out of your control as well as damages due to personal liability.
Once you’ve fully repaid your loan and become the mortgage holder, any policy-covered payouts will go to you.
Let’s Wrap Up
You’ll most likely need a mortgage loan to help you buy a home.
As the mortgagor, it’s your job to shop around for a mortgagee that can help you apply for the right loan and lends you the money you need to buy that home. The mortgagee will do their job: originating and issuing a mortgage, setting the mortgage interest rate, securing a perfected lien and mortgagee clause and guiding you, the mortgagor, through every step of the home buying process. 👊 🎉
U.S. Census Bureau. “S2506 FINANCIAL CHARACTERISTICS FOR HOUSING UNITS WITH A MORTGAGE.” Retrieved December 2021 from https://data.census.gov/cedsci/table?q=mortgage%20payment&tid=ACSST1Y2019.S2506