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Mortgagor

DEFINITION

Borrower who has a mortgage secured by real estate. A borrower can include an individual, company, or business.

EXPLANATION

A mortgagor can qualify for a mortgage based on a few qualifications including their income, credit, and down payment amount. These basic qualifications are used to determine mortgagor eligibility based on the risk of approving the borrower for a loan.

The income of a borrower is paramount to determining whether they can afford payments, pay down the principal amount, and maintain property ownership. The second qualification a lender looks at is a mortgagor’s credit. Typically, the minimum credit score a borrower must have to qualify for a loan is a 650 credit score. An applicant’s credit history is typically a good starting in determining whether a borrower will be able to afford payments. The down payment amount of a borrower helps minimize the risk for a lender to provide a loan. The higher the loan amount, the more invested a borrower becomes in a mortgage, therefore reducing a lender’s risk.

Conventional lenders typically require borrowers to put a 20% down payment to purchase a property. For borrowers that cannot afford the 20% down payment amount can apply for FHA mortgages that have a 3.5% minimum down payment amount. In return for having a lower down payment amount and less equity, the mortgagor will be required to purchase private mortgage insurance.

How a Consumer Can Apply for a Loan

To apply for a loan, a prospective borrower must submit a loan application. Most lenders use standard loan application forms called a 1003 mortgage application. The application asks questions regarding a borrower’s income, credit, debt, assets, and others. In addition to the application, the borrower must submit documents requested by the lender and letter of explanations highlighting the borrower’s financial circumstances.

The debt-to-income ratio of a borrower is also a crucial loan eligibility requirement. The lower the borrower’s debt, the higher likelihood that they can qualify for a mortgage. Lenders typically use a maximum 36% debt to income ratio, using a borrower’s gross income.

In return for being granted a mortgage, a mortgagor must pay monthly mortgage payments to the lenders. Payments typically include principal and interest, however there are options when a borrower may pay a minimum payment or interest only payments. Programs vary from fixed to adjustable rate programs and eligibility depends on the unique circumstances of a borrower.

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