Security
Definition and meaning of Security in real estate.
In real estate, security refers to the asset or property pledged by a borrower as collateral to assure a lender that a loan will be repaid. This pledge gives the lender a legal claim to the property, which can be sold to recover the debt if the borrower defaults.
In more detail
Security is the foundation of the mortgage industry, transforming a simple promise to pay into a backed financial agreement. When a buyer purchases a home with a mortgage, they sign a deed of trust or a mortgage document that establishes the home as security for the loan.
The lender files a lien against the property title, preventing the home from being sold without the mortgage being paid off first. The value of the security is verified through a professional home appraisal to ensure the home is worth more than the loan amount. If the borrower defaults, the security allows the lender to initiate foreclosure proceedings to retrieve their funds.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Collateral |
| Required for | Mortgages, home equity loans, and secured lines of credit |
| Watch out for | Loss of property if you fail to meet loan obligations |
A bank approves a home purchase loan only after verifying through an appraisal that the house provides sufficient security to cover the $300,000 mortgage amount.
Frequently asked questions
Why do lenders require security for home loans?
Lenders require security to minimize their financial risk. If a borrower stops making payments, the bank can seize and sell the property to recover the unpaid loan balance.
What happens to the security once the mortgage is paid off?
Once the loan is paid in full, the lender releases their lien on the property, and the home is no longer held as security for the debt.
Related terms
Sources & references
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