Primary Mortgage Market: What It Is and How It Works

Written by Jennifer PachecoUpdated: 28th Dec 2021
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As soon as you start shopping for a mortgage, you’re automatically known as a member of the primary mortgage market.

What this means is that you’re a borrower looking for the best rate possible. The best rate possible granted to you through a primary mortgage lender.

And the more members there are in the primary mortgage market, the more competitive the primary lender’s get.

You, as the future homeowner, are very important for keeping the primary mortgage market up, running, and in good shape. Without you, real estate would suffer drastically.

What Is the Primary Mortgage Market?

In its most basic definition, the primary mortgage company is a place that homeowners and primary lenders go to sign and secure a mortgage.

These mortgages can be self-owned, where the home buyer lives in the household, or they can be investments, a way for the home buyer to make some extra money.

If you’re a prospective homeowner looking to sign and secure a mortgage, the primary mortgage market will have your back – from the time you’re preapproved to the very end.

Throughout the entire home buying process, you’ll work with your selected primary lender to solidify a mortgage payment and interest rate that’s fitting for you. Once you do, you’ll close on the property and begin moving into your new home.

>> More: How to Apply for a Mortgage

How Does the Primary Market Work?

To get involved with the primary mortgage market, start by simply calling or visiting your local bank branch to connect with an online mortgage lender.

From there, your primary lender will communicate mortgage rates to you, what’s available and what’s not available.

Once you show interest in a particular plan, your primary lender will calculate the interest rate and see if the option you selected is right for your lifestyle.

All final paperwork will be completed with this primary lender at your local bank, including closing proceedings.

>> More: What Is the Average Monthly Mortgage Payment?

What Lenders Are Involved in the Primary Mortgage Market?

The primary mortgage market is not a one-stop-shop to find your primary lender; you have options to choose from.

You’re not obligated to go to a credit union, just like you’re not obligated to go to a commercial bank.

Keep your options open and see which lender has the right plan and rate for you. Some of the most popular lender types are briefly talked about below:

  • Mortgage banker: Typically, an individual that signs and secures a mortgage with a prospective homeowner through their own funding or borrowed funding.
  • Mortgage broker: The middleman, per se. This person connects prospective homeowners with the right primary lenders.
  • Commercial banks: A regular, everyday bank that offers savings and checking accounts to their customers. Such banks can provide a variety of loans, including mortgage, auto, and personal.
  • Credit unions: These not-for-profit organizations offer most of the same features a traditional bank offers, including mortgage loans and rate offerings.
  • Savings associations/loan associations: Again, very much like traditional banking institutions in that they deal with savings accounts, deposits, and mortgage loans.

>> More: How to Choose the Best Mortgage

Who Regulates the Primary Mortgage Market?

All parties involved in the primary mortgage market consist of primary lenders and prospective homeowners.

Primary lenders can be mortgage bankers or brokers, traditional banks, credit unions, or any type of savings association.

Differences Between Primary and Secondary Mortgage Markets

It’s true that the primary and secondary mortgage markets both play their own singlehanded part in the real estate world.

For instance, the primary mortgage market bases their entire existence on helping borrowers find and secure a good market lender.

On the other hand, the secondary mortgage market is where investors purchase and sell already existing mortgages created by the primary mortgage market.

Investors are buying mortgage-backed securities, which are a pool of home loans group together.

Simply put, as soon as the mortgage is closed, the borrower and loan both enter the secondary mortgage market.

Why do we need a secondary mortgage market? Easy answer – to keep those interest rates on your monthly payments low.

Without this area of business, lenders wouldn’t have as much capital to pass onto prospective homeowners, inadvertently increasing interest rates.

To achieve this goal of low interest rates, primary lenders will take your mortgage loan right after closing and sell it within the secondary mortgage market – don’t worry, that doesn’t alter your ownings of the home!

Bottom Line: Primary Mortgage Market

Basically, the primary mortgage market needs to exist so that borrowers don’t get crippled by their mortgage payments in the long run.

We all need assistance and a little bit of help throughout our lives, and luckily this portion of the real estate world has our back so that we can successfully own a home or homes throughout the years.

I don’t know about you but coming up with a few hundred thousand dollars would take a mighty long time.

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Jennifer Pacheco

Jennifer Pacheco attended the University of Dartmouth, Massachusetts where she earned her degree in English Writing & Editorial Work. She is a seasoned personal finance writer with over 5 years of professional work under her belt, and supplies easy-to-read information that’s educational, engaging, and conversational to help you make the most of your money.