What Is the Primary Mortgage Market?

The primary mortgage market is where borrowers can obtain a mortgage loan from a primary lender. Banks, mortgage brokers, mortgage bank🍒ers, and credit unions are all primary lenders and are part of 🌜the primary mortgage market.

How the Primary Mortgage Market Works

Homeowners can deal directly with primary lenders when shopping for a mortgage loan by contacting their local bank. Most borrowers won't notice that they're dealing in the primary mortgage market since they'll interact with their mortgage representative at their local bank during the entire process. The mortgage professional will educate the borrower about the various types of mortgages available and quote the interest rate depending on which type was chosen. The local branch will usually be the location for the loan closing—where the paperwork is signed.

Many borrowers also start the home-buying process by contacting a mortgage banker or 澳洲幸运5官方开奖结果体彩网:mortgage originator. Originators and mortgage bankers are not banks per se but, instead, help facilitate the transaction and refer the mortgage request to a bank to close the loan. Brokers get a fee for their service since they refer their business to primary lenders. On the other hand, the borrowers stand to get a better rate by having the broker shop around for the best deal depending on t💧he borrower's credit and the de🤪sired terms.

However, it's important to note that the 澳洲幸运5官方开奖结果体彩网:Co🃏nsumer Financial Pr♍otection Bureau has implemented regulations regarding compensation for mortgage brokers. Before the financial crisis, brokers could receive compensation from the borrower and the lender. Consume൩rs were unaware that the broker was getting paid by the lender when they paid their fee. Also, brokers had incentives ♛to steer consumers to more expensive products or mortgages and, sometimes, higher interest rates. Since the Great Recession of 2008 and 2009 and the resulting regulations that followed, the number of mortgage brokers has declined.

Benefits of the Primary Mortgage Market

There are some benefits aᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚvailable to borrowers who transact in the primary mortgage market, which can include𓄧: 

Low Closing Costs

Primary lenders are typically locally owned banks, meaning they do the credit analysis and underwriting process. 澳洲幸运5官方开奖结果体彩网:Underwriters review a borrower's financial information and credit history to decide whether to extend credit or deny the loan. Also, local banks prepare all the paperwork and documentation in-house instead of going through a centralized unit out of state, which is the process for some large banks. The result can be lower fees with a local bank since they have less overhead versus a la♐rger bank. Also, if a mortgage broker got involved in finding the bank, a fee will be assessed as well. In short, opting for a locally-run bank for a prima🅺ry mortgage can help reduce closing costs.

Small Down Payments

Typically, the 澳洲幸运5官方开奖结果体彩网:down payment for a mortgage is 20% of the home's purchase price. However, a borrower can put down less money, an♈d many primary lenders offer a 10 percent downpayment.

For low-to-moderate income borrowers, an FHA loan offers a down payment as low as 3.5% of the home's value. FHA is the 澳洲幸运5官方开奖结果体彩网:Federal Housing Administration, which provides insurance to lenders so that they can issue loans to low-income borrowers.

However, a down payment of less than 20% requires the borrower to purchase 澳洲幸运5官方开奖结果体彩网:private mortgage insurance or PMI. PMI protects banks and lenders in case the borrower defaults on the mortgage. PMI is a monthly fee charged to the borrower until 20% of the mortgage loan has been paid off.

Flexibility

Because the originators of the loan are typically locally owned banks, it is more likely that the borrowers will be able to commun🐠icate with the people who get the final say, which is unlikely to happen at a national bank. Direct contact can provide flexibility if the borrowers have a unique financial situation. 

The flexibility can include offering a fixed-rate 15-year versus a 30-year mortgage if the borrower wants to pay off the loan sooner. Some 澳洲幸运5官方开奖结果体彩网:advantages to a 15-year mortgage include fewer total interest charges since the loan is paid off earlier. Also, borrowers can usually negotiate a lower interest rate since there's less risk of the borrower defaulting or not paying off the loan due to financial hardship. Of course, a big 澳洲幸运5官方开奖结果体彩网:advantage to a 30-year mortgage is that it offers lower payments sin🐟ce they're spread out over a longer period versus other terms.

澳洲幸运5官方开奖结果体彩网:Adjustable-rate mortgages (ARMs) are a flexible option that are usually offered for consideration. ARM loans typically come with a fixed interest rate for a set period of💫 time and are then adjusted annually on an index that was pre-determined by the lender and the borrower. Typically, ARMs come with a cap on how high the interest rate could go during a loan's lifetime, making it easier to calculate and budget for your maximum monthly payment. 

Primary Mortgage Market vs. Secondary Mortgage Marke🌼t

The primary market is made up of primary lenders. Primary lenders typically keep the loans they originate as part of their portfolio and service them for the life of the loan. However, the bank that made the mortgage loan can sell the loan in the 澳洲幸运5官方开奖结果体彩网:secondary mortgage market, which is a market where investors can 澳洲幸运5官方开奖结果体彩网:buy and sell previouꦰsly-issued ওmortgage loans. A mortgage can be sold to another mortgage lender or service company, which processes the payments for the loan. The new lender orꦚ service provider earns money from fees and interꦉest on the mortgage.

Many mortgages are purchased by Fannie Mae or the Federal National Mortgage Association&💃nbsp;(Fannieꦺ Mae, or FNMA). Fannie Mae turns around and packages the loans before selling them as investments called 澳洲幸运5官方开奖结果体彩网:mortgage-backed securities (MBS), which are similar to mutual funds but contain mortgages instead of stocks. Investors earn the interest rate from the mortgages for holding the MBS.

If your mortgage is sold, please know that it's a common practice in the financial industry. Banks have lending limits, meaning they have caps as to how much of their deposit base they can lend. The sale of a mortgage loan to Fannie Mae or a service provider removes the loan from the bank's books allowing it to lend out more money. If banks couldn't sell off their mortgages, they'd reach their lending caps and wouldn't be able to offer any more mortgages, which would slow the economy. However, unless you're an investor looking to purchase an MBS, you won't deal with the secondary market. Instead, you'll deal with a bank or broker in the primary mortgage market.

The Bottom Line

If you're a homebuyer, you will be interacting with the primary mortgage market throughout the homebuying process. Essentially, your local bank, credit union, or mortgage broker are all primary lenders that will work within the primary mortgage market to help you select a loan and complete the necessary paperwork.