During the home buying process, you will review and sign many documents. In these documents, you will encounter various words and terms which can be confusing, such as “mortgagor” and “mortgagor”. When considering borrowing a home loan, it is important to understand mortgagor versus mortgagee and learn the roles and responsibilities of each, as well as how mortgages work, the different types of mortgages available and how to get a mortgage.
What is a mortgagor?
Definition of mortgagor
A mortgagor is just another word for “borrower”. In a mortgage purchase or loan refinance, that means you.
“The mortgagor is the person, couple, or group of people who are seeking a loan to buy a home – also known as the buyer, borrower, or homeowner,” says Rob Heck, originator at Morty. At New York.
Who is the mortgagee?
Definition of mortgage creditor
Mortgagee is another word for the bank or lending institution that provides the funds for a home purchase or refinance.
“The mortgagee has rights to the real estate collateral associated with the securitization of the loan, which provides them with protection against default,” Heck says.
In other words, the mortgagee has the right to seize and repossess your home if your mortgage payments are not paid.
Discount rate overview
To help you remember the difference between mortgagor and mortgagor, consider that words ending in “er” and “or” generally apply to the person doing the action – in this context, l buyer or mortgagor who takes out a loan and pays the mortgagee. Words ending in “ee” refer to the party receiving the action; a mortgagee receives money from a borrower.
“These terms can be confusing because most people think of the creditor or grantor as the institution extending something, so many think the word ‘mortgagor’ would follow the same logic,” says Jared Maxwell, vice- President of Consumer Direct Lending at Middletown, Embrace Home Loans, headquartered in Rhode Island.
Maxwell notes that the term “mortgagee” appears not only in your loan documentation, but also in your home insurance policy in the “mortgagee clause,” which describes the lender attached to the property.
Knowing the definition of mortgagee and the definition of mortgagor, and understanding the roles and rights of each, makes you a better informed borrower when it’s time to sign your loan documents and other documents at closing.
How Mortgages Work
When learning the difference between a mortgagor and a mortgagor, it helps to also understand the definition of a mortgage And how does it work.
Basically, a mortgage involves a mortgagee lending a mortgagor a lump sum of money to buy or refinance a home. The mortgagor repays the mortgagee each month in small installments, including the principal borrowed plus a predetermined fixed or adjustable interest rate until the loan is repaid. A fixed rate remains the same for the duration of the loan.
Almost all mortgages are dampen, which means that the loan requires regular monthly payments. Part of the principal balance and part of the interest are repaid each monthly payment until the loan is fully repaid on the last payment. Fully amortized loans have equal monthly payments that do not change. Partially amortized loans also have payment terms; however, a balloon payment is made either at the beginning or at the end of the loan.
A mortgagee will work with a mortgagor to explain if the mortgagor qualifies for a mortgage based on their credit, income, and equity in a home.
“As a mortgagor, you’ll need to provide supporting documentation, such as information about your income and assets,” Maxwell explains. “In addition, you’ll want to understand how monthly payments are calculated and how your mortgage payment fits into your monthly budget.”
Note that most mortgagees do not set minimum guidelines for the loans they create. Government lending guidelines are set by either the Federal Housing Administration (FHA), US Department of Veterans Affairs (VA), or US Department of Agriculture (USDA), while conventional lending guidelines are set by Fannie Mae and Freddie Mac.
“The mortgagee’s goal is to help the mortgagor follow these guidelines so they can qualify for a mortgage,” says Alexander Vance, loan consultant for Blue Spot Home Loans, a division of Cherry Creek Mortgage.
Different types of mortgages
Conventional loans backed by Fannie Mae and Freddie Mac require a minimum credit score of 620, although some lenders may impose a higher standard in addition (a practice known as “layering”). While a 20% deposit is required to avoid having to pay for private mortgage insurance (PMI) with your monthly mortgage payment, there are conventional loan programs that allow a down payment as low as 3%, and still others that require a minimum of 5%.
“For most consumers, a conventional loan offers the best rate a mortgagor can find, with no additional upfront costs or mortgage insurance, provided a minimum 20% down payment is made,” Vance says. “Mortgage insurance is generally required when you deposit less than 20%, but the cost of mortgage insurance is lower for borrowers with higher credit scores.”
A FHA loan is backed by the Federal Housing Administration and requires you to pay mortgage insurance premiums (MIP) over the term of the loan as well as an initial premium equivalent to 1.75% of the amount of the loan borrowed.
“FHA loans typically have lower rates on 30-year mortgages than conventional loans and can help borrowers qualify through a lower down payment requirement – as low as 3.5% – a credit score of lower qualification and a higher debt-income limit,” says Vance.
A VA loan is available to eligible military members, veterans, and surviving spouses. For those who qualify, there are no down payment or mortgage insurance requirements, credit underwriting is more flexible, and interest rates are generally lower than for other types of loans. However, you may be required to pay a VA financing fees ranging from 0.5% on some refinances to 3.6% for some home purchases.
A USDA loan is another government-sponsored loan that also has no down payment requirement and looser credit requirements. However, the property attached to the loan must be located in a USDA-approved rural area and you cannot exceed certain income limits. Instead of mortgage insurance, USDA loans have both upfront and annual guarantee fees.
A jumbo loan offers more funds than the limits set by Fannie Mae and Freddie Mac (currently $548,250 in most parts of the country). If you’re looking to buy an expensive property, a jumbo loan might be your best or only option. Note that jumbo mortgage rates fluctuate and may be lower or higher than typical conforming mortgage rates.
You can apply for a non-qualifying (non-QM) mortgage if you don’t qualify for a regular mortgage. A non-QM borrower typically only submits bank statements, as opposed to the pay stubs and tax returns required for a conventional loan. Non-QM loans tend to come with significantly higher rates and different requirements.
How to get a mortgage
Here is a basic overview of the steps involved with get a mortgage when buying a house:
- Work to improve your credit score and credit history, save enough for a minimum down payment, and understand what you can afford.
- Decide which type of mortgage is right for you.
- Shop around with different lenders and collect mortgage deals.
- Choose a lender and loan product based on criteria important to you, such as lowest possible rate, down payment required, and loan term.
- Get pre-approved for a mortgage and get a pre-approval letter from the lender. Be prepared to provide the necessary documentation requested.
- In search of the ideal home.
- When you find a property you like, make an offer and, if accepted, enter into a purchase agreement.
- Complete the mortgage loan application.
- Wait for an underwriting decision from the lender.
- Close the loan and sign the necessary documents.
“The most important step in this process is to shop around with multiple lenders, as mortgagers will compete with other offers and you may be able to lower your rate and get more favorable loan terms,” explains forward.