Who Is a Mortgagor and What Are Their Responsibilities?

A whopping 61.5% of Americans take out a mortgage to own their homes. If you plan to be one of them, you should know: who is the mortgagor?

A mortgagor is someone who borrows money to buy real estate. They secure this loan by pledging their property as collateral. A mortgagor is legally obligated to repay the mortgage over the loan term.

The first and most important part of a mortgage is to get pre-approved. A pre-approval can help you determine your loan amount and give an estimate of your monthly payments. Get started now!

What Is a Mortgagor?

A mortgagor is the one who is the borrower in a mortgage agreement. When someone gets a loan to buy a home, they become the mortgagor. The mortgagor must make monthly payments to repay the loan.

The mortgagor pledges their property as collateral to the lender (the mortgagee). Failure to repay the loan can lead to foreclosure. In such cases, the mortgagee is authorized to take ownership of the mortgagor’s property. 

Mortgagor vs Mortgagee

Here are the key differences between a mortgagor and mortgagee: 

Factors	Mortgagor	Mortgagee
Role	An individual who takes out a loan to buy a home.	An individual or entity who grants the home loan.
Ownership	Maintains legal ownership of the property throughout the mortgage term.	Has a lien on the property, but not a legal title. Can seize the property in case of loan default.
Criteria	Must follow all the loan terms set by the mortgagee.	Makes the loan terms, and sets criteria like down payment and credit score.
Responsibilities	Repay the loan amount; insure and maintain the property.	Originate the loan and disburse funds to the mortgagor.

What Are the Responsibilities of a Mortgagor?

A mortgagor is legally obligated to:

1. Make Regular Payments: The mortgagor is responsible to make monthly mortgage payments. This includes the principal loan amount and the interest.
2. Maintain the Property: The mortgagor must ensure that the property is in a livable condition. This protects the value of the collateral.
3. Cover Taxes and Insurance: The mortgagor must pay property taxes and mortgage insurance, if applicable. This covers any potential damages or losses.
4. Comply with Loan Terms: The mortgagor must follow all loan terms. They should notify the lender of significant decisions, such as selling the property.

How Does a Mortgage Work?

During the approval process, the lender evaluates the mortgagor’s credibility to decide whether to grant them a mortgage. It involves the following steps:

1. Mortgage Pre-Approval: During pre-approval, the lender inquires about the mortgagor’s income, debts, and assets.
2. Purchase Agreement: This document outlines the terms and conditions of the loan, as well as the agreed-upon amount.
3. Loan Application: The mortgagor provides the requisite documents to the lender. This includes proof of identity, income and assets, and a gift letter if applicable.
4. Mortgage Processing: The mortgage processor orders a property inspection, title report, and credit report. This examines any legal issues linked to the property.
5. Underwriting: The underwriter assesses any risk of defaulting. They review the mortgagor’s debt-to-income ratio, credit history and financial stability.
6. Closing: The closing disclosure outlines the details of the loan, such as monthly payments, terms, and closing costs.
7. Repayment: The mortgagor makes monthly payments as per the loan agreement. This continues until the loan is fully paid or refinanced.

What Are the Different Types of Mortgages?

There are two types of mortgages you can apply for:

1. Government-Backed Mortgages

Government-backed mortgages are supported by federal agencies. They provide options for buyers who may have lower credit scores or can make limited down payments. The main types include:

FHA Loans

• The Federal Housing Administration backs FHA loans. They are designed to help first-time home buyers and those with lower credit scores. They require:
  • A minimum credit score of 500
  • A down payment as low as 3.5% of the home’s purchase price
  • Proof of steady income and employment history

VA Loans

• The Department of Veterans Affairs backs VA loans. They are available to veterans, active military members, and eligible spouses. These loans offer:
  • No down payment
  • Competitive interest rates
  • No need for private mortgage insurance

USDA Loans

• The US Department of Agriculture backs USDA loans. They are for low-to-moderate income borrowers in rural and suburban areas. They require:
  • No down payment
  • The home to be in a USDA-approved rural area
  • Income to be below specific regional limits

2. Non-Government Backed Mortgages

Non-government backed mortgages are not insured by any government agency. They typically have stricter requirements, but offer more flexibility for borrowers with strong credit profiles. The key types are:

Conventional Loans

• Conventional loans are the most common type of mortgage in the US. They are offered by private lenders like banks, credit unions, and mortgage companies. They require:
  • A credit score of 620 or higher
  • A down payment ranging from 5% to 20%
  • A stable income and good credit history

Conventional loans can either be conforming loans (i.e. within the limits set by the FHFA) or non-conforming loans (i.e. loans that exceed these limits).

Jumbo Loans

• Jumbo loans exceed the loan limits set by the Federal Housing Finance Agency (FHFA). They are suitable for buyers purchasing high-value homes. They require:
  • A credit score of 700 or above
  • A larger down payment, often 20% or more
  • Proof of high income and significant assets

Should You Become a Mortgagor?

As a mortgagor, you can own a home without paying the full price upfront. However, be prepared for the responsibilities and risks that come with a mortgage. This can include potential foreclosure if you default. 

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