In the real estate market, mortgage and title companies play key roles in creating and insuring home loans. Although these are companies that carry out very different functions, one could not operate without the other. Acquaint yourself with the work of mortgage and title companies before you wade into the home-loan market.
Home Loans and Mortgage Companies
A mortgage is a loan secured by real property such as a home. A mortgage company works in the business of creating these loans by screening applicants and obtaining the financing they need from banks and other financial institutions. The mortgage company runs a credit report on the prospective borrower; it also offers loans with interest rates and terms acceptable to the lender as well as the borrower. In return for these services it earns a fee or commission from the lender based on the value of the loan.
Mortgage companies serve a large market; for borrowers, they greatly simplify the process of securing a home loan. Because different banks have varying guidelines they impose on borrowers, the mortgage company facilitates the process by doing the needed screening and offering an appropriate range of home loans to the borrower. A borrower needs only to make a single application and deal with a single company instead of several banks, in order to secure the right loan. The mortgage company also serves lenders by finding customers that fit the lender's credit guidelines.
A title insurance company insures the legal title to the property held by a homeowner. Employees of the title company carry out a title search that identifies the property's past ownership and discovers any outstanding tax issues, liens, court judgments or disputes concerning ownership of the land and buildings on the property. The title company certifies clear title and provides insurance to the lender as well as the buyer that the loan is free of any claims or encumbrances.
Title companies work for lenders and homeowners. Without the services of a title company, mortgage loans would be a much riskier proposition for both parties. If you buy a house without knowing about a claim or lien on the property, you risk taking on a large amount of debt as well as litigation over ownership, which may not go in your favor. In addition, the lender risks a default on the loan as well as the legal fees and costs incurred by any legal action over title, property taxes and other issues. Title insurance repays the lender for the full amount of the mortgage if the borrower loses title to the home; it indemnifies the homeowner for the market value of the property.