Mortgage Legal Document Definitions

It is imperative to understand what is entailed in a mortgage loan from start to finish. This is the back-end requirements- re some of them. This is the Mortgage Legal Document Definitions.

If you are new at starting to look for a home, you will need to understand some of the definitions for what a mortgage, mortgagee, mortgagor, and legal document definitions. Why you need a mortgage and the role of the mortgagee. We are going to make it easier for you to ask questions, and get answers. You will be the smart mortgage applicant.

Legal Terms You Need To Know

Mortgage: A mortgage is a loan to purchase real estate or property in which the property is collateral for that loan. The mortgage is also the drawn up legal document for some states, which specifies the terms of the loan. States that have a mortgage document called the mortgage: (Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Montana, New Jersey, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, Wisconsin.)

Deed of Trust: The deed of trust is another name for the mortgage terms in other states. Deeds of trust states are: (Alaska, Arizona, California, Colorado, District of Columbia, Idaho, Massachusetts, Maryland, Mississippi, Missouri, Michigan, and Montana. Nebraska, Nevada, North Carolina, Oregon, Tennessee, Texas, Utah, Virginia, Washington, and West Virginia). *Note: some states have both mortgages and deeds of trust.

Mortgagee: The mortgagee is the lender, usually the bank, mortgage company, credit union, or any institution that furnishes the funds to buy the home. The lender will often service the loan (accept the payments the mortgagor makes). However, sometimes the original lender may sell the servicing of the loan to another association that only services or accepts payments.

The lender who makes loans is usually a Fannie Mae, Freddie Mac, Ginnie Mae, Federal Housing Administration (FHA)                  approved lender. Fannie, Freddie, and other investors do not make the loan. They are the investors who buy the loans to pool together for securities. They do not furnish the money. The loans are then sold to these entities and this money frees up the lender funds to make more loans.

Mortgagor: The mortgagor is you, the individual(s) who makes the application to buy the collateral that secures the mortgage. Once the loan is closed, the applicant(s), you, become the mortgagor.

The Note and Deed of Trust or Mortgage

Note: The note (sometimes referred to as a promissory note), is also a document that contains the mortgage terms also. You can view a copy of a promissory note here. 

The note spells out the terms of the mortgage and acts as the lender/bank/mortgage company, saying you owe me this much money, this is the loan amount, the interest rate, and the dates of the first payment. It also lists when the payments are to made, and the term (meaning, the ending date of the last payment). Usually, 10, 15, 20, or 30 years from the date of the first payment.

Mortgage or Deed of Trust: What is the difference? The mortgage/deed of trust secures the collateral for the mortgage loan. These documents give the lender the right to foreclosure on the collateral/property if the payments are not made according to the promissory note. The mortgage is a two-party association, where the deed of trust has a trustee. Read more here.

Warranty Deed: A warranty deed is the transfer of ownership. This document will list the grantor (seller or person giving up the property to another). The grantor of the warranty deed guarantees that he or she holds clear title to a piece of property/real estate, and has the right to sell it to the grantee (person who is buying the said real estate).

Quitclaim Deed: The seller of the property who uses the quitclaim deed does not guarantee that he or she holds full title to a piece of real estate. He or she releases all of his interest in the property but makes no warranties or covenants for the title in a quitclaim deed. The quitclaim deed is an instrument that families often use to transfer their interest in a property to another family member.

These are also used in a divorce where one spouse is transferring their share of the property to the other.  The quitclaim deed is not always the best solution. Especially when transferring a real estate property from the seller to the buyer in an unknown person. A warranty deed would indicate the grantor has the full right and title to deed the property to another person. If you were to use the quitclaim when buying a new home from a non-family.

Settlement Agent -Closing Agent – Closing Attorney: The mortgage closing always has a closing agent – settlement agent or closing attorney. This office is responsible for making sure the real estate property in question has a clear and clean title, and this part of the loan closing is mandatory. There are fees that exist for this part of the loan and are always specified within the initial and follow-up estimates you are given by the lender.

In part of the US, the settlement agent is often referred to as the Escrow Company or Title Company. The latter is the company that provides and issues the title report and title insurance. The settlement agent checks public recorders for the buyer to make sure they have not liens that could place a restriction on the property. This includes delinquent taxes, judgment, or other personal credit issues that have been filed against them. A judgment can become a lien against the real estate and it would need to be paid before or at closing to have a clear title.

Title Insurance Policy: The closing agent/closing Attorney prepares the Title Insurance Policy. The policy is actually a document that will ensure against financial loss caused by defects in title to real estate. The title insurance protects you, the buyer against losses from issues that may have existed before you purchased the real estate. The title company will be your defense in court if necessary and will pay the cost thereof.  This is a standard required in closing a mortgage loan.

The Title Policy company will search the property history to see when the property/real estate was last transferred. It will also name the people who have bought and sold the property as far as necessary. Some say that 20 to 60 years will give adequate title transfers and data to make sure the property is free and clear real estate without any encumbrances, (a lien, or mortgage). * We will dedicate an entire post about Title Policy soon.

Mortgage Process

As you can now see, getting a mortgage loan to purchase or finance a beautiful home is not a cut and dried process. It is very detailed and has lots of steps, which will eventually come to the final stages of closing on your new home.

Being an informed buyer ahead of the initial process can save you time, headaches, and possible money. When you know what to expect from the initial start, you will know what questions to ask, when to ask and get the right answers.

The best place to start when you decide you want to buy a home is by knowing your credit status. You know how much your income is, your assets, and your employment status. If your credit is good, you have sufficient down-payment, employment history, and do not have much debt, your chances are positive.

Part of Qualifying – Down Payment

If you have already disciplined yourself to save as much as 20% down, it will give you a step in the right direction to obtain financing. When the latter is the case, you would not need mortgage insurance on a conventional loan is one of the larger benefits. Another, it gives you equity upfront. This also puts you into a position of qualifying easier as your debt to income ratio (DTI) can be higher with a 20% down payment.

If you have not been able to save as much for a down payment, you also can also get a higher loan to value ratio (LTV). Lenders now have the ability to give financing when they are Fannie Mae or Freddie Mac approved up to 97%. These investors do not make the loan. They buy the loans from the lender, which gives the lender more money to make loans. See more information here, and here.