The primary mortgage market is where prospective homeowners connect with primary lenders to secure mortgages for both owner-occupant and investment properties. The primary mortgage market is where home loans originate before they’re sold to investors in the secondary mortgage market.
For borrowers who are buying a house, the primary mortgage market is designed to help home buyers like you achieve your goal of homeownership. From the moment you make contact with a lender for a preapproval, you are a player in the primary mortgage market. As you move through the rest of the home buying process, you’ll work with a lender in the primary mortgage market until you close on the property.
Primary Mortgage Market Example
Let’s say you’re ready to buy your first home. You’ve built up some savings for a down payment and worked on your credit score in order to qualify for a Federal Housing Administration (FHA) loan. At this point, you decide to start shopping around for a home and a lender. With that, you’ll enter the primary mortgage market as a borrower seeking out the right lender for your situation.
Types Of Lenders In The Primary Mortgage Market
The primary mortgage market is not a one-size-fits-all scene. Instead, there are several types of lenders involved to help borrowers of all kinds obtain the mortgage they desire.
Here are the types of primary lenders that provide mortgage loans in the primary mortgage market.
- Mortgage banker: This is an entity or individual that provides mortgages to borrowers with their own funds or borrowed funds.
- Mortgage broker: A mortgage broker works to connect borrowers with potential lenders. Essentially, mortgage brokers are the liaisons that help borrowers find a lender.
- Commercial banks: Commercial banks are financial institutions that provide banking products, such as checking and savings accounts, to their customers. Additionally, commercial banks can provide mortgage loans as a part of the primary mortgage market.
- Credit unions: Credit unions are financial institutions that are operated as not-for-profit organizations. Like for-profit financial institutions, credit unions can provide mortgage loans to borrowers.
- Savings and loans associations: Savings and loans associations are similar to traditional financial institutions. With that, these entities can accept savings deposits and provide mortgage loans.
The lenders above are each a part of the primary mortgage market. However, there are some organizations that are often thought of as primary mortgage lenders that are, in fact, not primary lenders. The most pressing examples are the federally backed home mortgage companies Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac do not originate their own loans in the primary mortgage market. Instead, these entities buy loans issued through lenders in the secondary market.
The primary mortgage market is composed of a wide array of lenders. But not all lenders are created equally. With that, it’s important to take some time to learn how to choose a mortgage lender. The right mortgage lender can make the experience more enjoyable.
FAQs
The primary mortgage market is where prospective homeowners connect with primary lenders to secure mortgages for both owner-occupant and investment properties. The primary mortgage market is where home loans originate before they're sold to investors in the secondary mortgage market.
How is the primary mortgage market distinguished from the secondary mortgage market? ›
TL;DR: The primary mortgage market is used for homebuyers and lenders. Lenders finance a borrower's purchase of a home. The secondary mortgage market is between lenders and mortgage investors. Lenders will sell the debt to the investor who will buy it to make a profit.
Which is not part of the primary mortgage market? ›
Final answer: The entity not part of the primary mortgage market in the given options is the d) Federal National Mortgage Association (Fannie Mae). It is part of the secondary mortgage market where existing mortgage loans are bought and then sold to investors.
How does a lender in the primary mortgage market earn money when a loan is originated? ›
Mortgage lenders can make money in a variety of ways, including origination fees, yield spread premiums, discount points, closing costs, mortgage-backed securities (MBS), and loan servicing. Closing costs fees that lenders may make money from include application, processing, underwriting, loan lock, and other fees.
What does secondary market mean for mortgages? ›
The secondary mortgage market is a marketplace where investors buy and sell mortgages that have been securitized — that is, packaged into bundles of many individual loans. Mortgage lenders originate loans and then place them for sale on the secondary market.
What happens in the primary mortgage market? ›
The primary mortgage market is where prospective homeowners connect with primary lenders to secure mortgages for both owner-occupant and investment properties. The primary mortgage market is where home loans originate before they're sold to investors in the secondary mortgage market.
What is the simple difference between primary market and secondary market? ›
Key takeaways. The primary market is where new securities (stocks, bonds, etc.) are issued and sold for the first time, typically through initial public offerings (IPOs). The secondary market, on the other hand, is where already issued securities are bought and sold by investors.
Is Fannie Mae in the primary market? ›
In fact, Fannie Mae is one of two of the largest purchasers of mortgages on the secondary market. The other is its sibling, the Federal Home Loan Mortgage Corporation, or Freddie Mac, another government-sponsored enterprise created by Congress.
Are insurance companies part of the primary mortgage market? ›
The primary mortgage market is where lenders make mortgage loans directly to borrowers like savings and loan associations, commercial banks, insurance companies, and mortgage companies. These lenders sometimes sell their mortgages into the secondary market to institutions such as FNMA or GNMA.
Which of the following is a characteristic of the primary mortgage market? ›
Therefore, the characteristic of the primary mortgage market from the choices provided is that 'it works directly with borrowers to fund loans'.
Banks, mortgage brokers, mortgage bankers, and credit unions are all primary lenders and are part of the primary mortgage market. Homeowners can deal directly with primary lenders when shopping for a mortgage loan by contacting their local bank.
What is an example of a loan that originated in the primary mortgage market? ›
In this market, financial institutions like ABC Bank provide loans directly to individual homebuyers. Option 2, the ABC Bank loan, represents a loan that originates in the primary mortgage market, as it is provided by a specific financial institution to a borrower for the purpose of purchasing a home.
Why do lenders sometimes sell their loans to the secondary mortgage market? ›
Many institutions do not want to risk an economic crisis or lose money; therefore, many will sell the loan to the secondary market to repay the money they took out.
How do you differentiate between the two mortgage markets primary and secondary? ›
The primary market is the place to go to find a loan to buy a house. The secondary mortgage market is the place where the bank sells the mortgage and it is then traded around between buyers and sellers in the secondary market.
Is Fannie Mae a secondary market? ›
In addition, Fannie Mae participates in the secondary market, buying and selling DUS MBS and enabling investors to create structured securities backed by DUS MBS.
Is FHA part of the secondary mortgage market? ›
FHA does not purchase and securitize loans. Instead, FHA loans are delivered to the secondary market through Ginnie Mae's guaranteed mortgage-backed securities.
What is the difference between primary and secondary mortgages? ›
In the primary mortgage market, lenders make loans to borrowers at a certain interest rate, whereas in the secondary market, lenders securitize these loans into mortgage-backed securities (MBS) and sell them to investors.
What is the difference between a primary market and a secondary market quizlet? ›
what is the difference between a primary market and a secondary market? A primary market is a market for selling financial assets that can only be redeemed by the original holder. Secondary market is a market for reselling financial assets.
What distinguishes the mortgage from other capital market? ›
Answer and Explanation: Generally, mortgage markets are more secured than other capital markets. The only difference between the mortgage markets and other capital markets is the security of mortgages.
What are primary markets vs secondary markets real estate? ›
Generally, it's volume of sales, transaction volume amount, and population, among other things. A primary market has 5 million or more people. A secondary market has 2 million to 5 million people. And a tertiary market is under 2 million people.
