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Understanding the Financial Terms of Homeownership

Understanding the Financial Terms of HomeownershipKnowing the financial jargon in buying or selling a home may not seem important to you right now. However, understanding the difference between a home loan, mortgage, and deed of trust will be crucial if you ever reach a point of financial difficulty. These terms will have a large impact on your ability to be a homeowner.

Home loans.

A home loan is when a lender loans the person or persons buying a home money to purchase a home. This enables people to buy a home that they, at the time of buying the home, do not have cash available for. The loan comes with specific terms and conditions that must be met. Home loans are secured loans. Therefore, the house or property itself is the collateral, to be returned to the lender when obligations are not met.


The terms “home loan” and “mortgage” are often used interchangeable. Legally, a mortgage is a document between the homeowner and the lender. In a mortgage, the homeowner pays the interest to the lender as a method to secure the loan. The lender holds the title of the property until the borrower is able to repay the loan. The document is mainly for the lender, as it gives them the power to foreclose and sell the home if the buyer is unable to make the correct payments.

Deed of trust.

Though not all states use a deed of trust, California does. A deed of trust replaces a mortgage. In a mortgage, the document was between the borrower and the lender. In a deed of trust, the document is not only between the homeowner (who is now considered the trustor) and the lender (known as the beneficiary), but also includes a trustee. The trustee is most often a representative from a title company, but any individual or group that is not affiliated with either the borrower or lender can be used. The main difference between a deed of trust and a mortgage is found in who holds the title. Rather than the lender holding the title as they do in a mortgage, the trustee holds to title until the loan is fully paid off. If the terms and conditions are not being met in how the loan is supposed to be paid, the trustee then has the power to foreclose and sell the home.

Once the last payment on a home is made, mortgages and deeds of trust are cancelled.

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