Definition and Examples of Mortgagees

A mortgagee is someone who provides a loan to help you purchase real estate. While this is typically a financial institution, it can also be individuals like your parents, friends, or even a group of investors. By lending you the funds, the mortgagee gains a security interest in the property you acquire, making it a monetary investment for them. As the mortgagor, you hold a legal interest in the property because the deed belongs to you. Your responsibility includes making regular payments on the mortgage, which consists of both principal and interest. The mortgagee has the ability to foreclose on the property in case of default, allowing them to seize and sell the property to recover their investment.

How Mortgagees Work

Both mortgagees and mortgagors must carefully consider the potential outcomes before entering into a loan agreement.

Considerations for Mortgagees

While mortgagees are typically financial institutions, individuals can also choose to act as one. For example, if your child asks you to help them finance a home purchase, and you agree to lend them the money, you become their mortgagee. Before proceeding, evaluate the likelihood of your child repaying the mortgage and be prepared for the risks involved if they default. Ensure that you can manage the situation even in the worst-case scenario.

Considerations for Mortgagors

Securing a mortgage when buying a home is common, as most people cannot afford to pay in cash. Whether you seek a loan from a bank or a family member, consider your financial status and ability to meet the lender's requirements. Be sure you can satisfy criteria such as stable income, manageable debt-to-income ratio, and a good credit score before applying for a mortgage.

Conclusion

While mortgagees and mortgagors may sound similar, they play different roles in the property purchasing process. Understanding their distinctions is crucial when entering into a loan agreement. Keep in mind that national banks like Chase and Wells Fargo are common examples of mortgagees, and they have the right to foreclose on a property in default, demanding full repayment of the debt.