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Basic Mortgage Market

The basic mortgage market connects mortgage lenders to lenders who want to buy or borrow against the owner-occupied homes, vacation homes and investment properties. Most homeowners need a mortgage to buy their home, so it's important to understand the basic mortgage market process and benefits. Here's what you need to know. If you need help with a mortgage or any other financial question, consider working with a financial advisor.

Definition of primary mortgage market

The basic mortgage market is a collection of banks and lenders that lend to borrowers to buy or refinance their homes. Some banks sell their loans to other banks and investors through the secondary mortgage market. Other borrowers keep the mortgage on their balance sheet to collect income from the monthly mortgage payments.

Benefits of Primary Mortgage Market

The core mortgage market offers numerous benefits for homeowners and investors alike. Because the average homeowner buys and sells only one home every seven years, they often underestimate the benefits.

Continuous loan requirements

The basic mortgage market has matured to the point where banks and lenders follow fairly compliant lending requirements. Although many banks and lenders offer different programs, their lending needs do not change depending on who is taking the money. This consistency helps eliminate prejudice from the mortgage market to ensure that borrowers of all races, genders, ethnicities and other factors are treated fairly.

Standard process

When applying for a mortgage, this process is standard among most lenders. This standard procedure helps borrowers understand what is expected of them and what they will face until the application closes.

Low closing costs

Banks and mortgage lenders often handle in-house underwriting and processing. Some large banks focus on this process for even greater efficiency. Lenders waive the cost of their assigned staff on a large number of loans, resulting in lower closing costs for each borrower.

Small down payments

Banks and government programs offer a variety of down payment options for borrowers. A generation ago, the standard down payment was 20%. Today, with high competition and numerous support programs, many lenders are eligible for low payments of up to 3%.

For example, the FHA offers low payments of up to 3.5% for low to moderate income borrowers who are eligible for their mortgage. However, keep in mind that paying less than 20% usually requires mortgage insurance, which adds up to the monthly cost of buying a home.

Flexibility

When applying for a mortgage, there are many different types of mortgages available to suit your needs. Although many borrowers choose a standard 30 year fixed rate mortgage, this is not the only option. Other options include 10-, 15- and 20-year terms, adjustable rate mortgages (ARMs) and interest-only mortgages, to name a few.

Depending on your budget, credit score, down payment and other factors, there are a wide variety of mortgage options to choose from. Consult a mortgage broker or your local banker to discuss your situation and goals.

Types of Lenders in the Primary Mortgage Market

Basic Mortgage Market

The main types of lenders in the primary mortgage market are:

Mortgage Bankers A mortgage banker represents an individual or a company that lends money to borrowers.

Commercial Banks Financial institutions that offer a variety of banking and lending products in addition to mortgages. Some lenders prefer to borrow from their existing bank for convenience.

Credit unions. A credit union is a financial institution that operates as a non-profit company. They offer lower rates and fees on their banking and lending products than competing banks.

Savings and Debt Associations Savings and Loan Associations (S&Ls) are like traditional commercial banks. However, they focus on savings accounts and mortgages rather than a wide range of banking and lending products.

Mortgage brokers. A mortgage broker offers products from various banks and mortgage lenders to find the best fit for their clients. Many lenders prefer to work with one broker as they can buy multiple lenders through a single application.

Primary Mortgage Market vs. Secondary Mortgage Market

When a mortgage loan is taken out, it is in the primary mortgage market. If the lender decides to sell the loan, they will do so in the secondary mortgage market. There are many reasons why lenders sell their mortgages. Here are some common reasons:

Bottom line

Basic Mortgage Market

Although most borrowers have never heard of the term primary mortgage market, they take advantage of it whenever they buy or refinance a home. There is a standard process in the primary mortgage market that creates permanent loan requirements for borrowers. There are many types of mortgage lenders that offer low mortgage costs and many choices.

Tips for getting a mortgage

If you want to buy or refinance your home, it pays to understand what your new mortgage payment will be. Our mortgage calculator estimates your mortgage payments based on the amount borrowed, the term of the loan, the interest rate and other factors. Understanding your expected monthly payments will help you determine if this loan fits your budget.

When applying for a loan, some lenders may require proof of investment and other assets to approve your application. If you have a financial advisor, this person can easily provide you with those documents to expedite your loan process. But if you do not, it is not difficult to find an authoritative financial advisor. SmartAsset's free tool connects you with three financial advisors who serve your area, and you can interview your advisor's matches for free to decide which one is right for you. If you are looking for a mentor who can help you achieve your financial goals, get started now.

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The post Primary Mortgage Market Guide was first published on the SmartAsset blog.