Definition:
A first mortgage is the primary loan used to buy a home and takes priority over all other liens or loans secured by the property.
Example:
Tina buys a house for $300,000 and takes out a mortgage from her bank to help finance the purchase. This is her first mortgage. A few years later, she takes out a home equity loan for renovations, which becomes her second mortgage. If Tina ever defaults, the first mortgage gets paid off before any other loans.
Explanation:
In real estate, the first mortgage is typically the largest and most important loan on a property. It is the initial loan used to purchase the home and is secured by the property itself. This means if the homeowner doesn’t make payments, the lender can foreclose and sell the home to recover the money owed.
Because it holds a “first lien” position, the first mortgage lender is paid first from the proceeds of a foreclosure sale. Any other loans, like home equity loans or lines of credit, are considered second mortgages and are paid only after the first mortgage is satisfied.
Most homebuyers have a first mortgage through a bank, credit union, or mortgage lender. The loan includes principal, interest, and often escrow payments for taxes and insurance. It’s typically paid monthly for over 15 to 30 years.
Why is First Mortgage Important in Real Estate Transactions?
The first mortgage is important because it plays a central role in financing a home purchase. For buyers, it’s the primary tool for affording a home. For sellers, understanding the status of a buyer’s first mortgage helps confirm they’re qualified and financially ready to close.
In short, the first mortgage determines ownership rights, payment responsibilities, and what happens in the event of default, making it a key element in every real estate transaction.