Mortgage

A Mortgage is a written instrument that creates a lien on real estate as security for the payment of a specific debt.

 

1.  The borrower executes a Promissory Note to establish a personal liability for payment of the debt on the part of the mortgagor.

2.  The mortgage establishes a lien on the property as security for the debt.

3.  There must be a debt (note) and a pledge (mortgage).

4.  The mortgage must follow the debt and acts as security for the debt for the life of the loan.

 

A Conventional Mortgage is a mortgage in which there is no government guarantee of repayment as there is in an FHA or VA mortgage.  Generally a conventional mortgage requires a higher downpayment than a government guaranteed loan because the risk is borne by the lender.

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The Veterans' Administration (VA) and the Federal Housing Administration (FHA) are government agencies that guarantee mortgage loans.  Neither agency makes loans.  The loans are made by approved lending institutions and guaranteed by the VA and FHA.  In the event of foreclosure and subsequent loss, the government agency assumes all or most of the risk.  There are other government agencies that make or guarantee loans but FHA and VA are the largest.

 

Conventional lenders generally require a higher downpayment than required of government guaranteed loans because of the risk.  To alleviate risk and make higher loan-to-value loans, conventional lenders use Private Mortgage Insurance (PMI) to insure a portion of the loan.  The lender makes a loan of 90% to 95% of the property value and the insurer guarantees the excess of the loan over 80% of the property value.  This limits the mortgage holder's risk to 80% of the value of the property.

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