To obtain financing for
the purchase of a home can be an intimidating process for
a home buyer.The following three Sections are designed
to minimize this frustration by highlighting the steps
involved in the process.
THE RIGHT LENDER
To identify the right lender, you must first have a clear
understanding of the various types of lenders available.The
home financing system in the United States includes many
private and public institutions.Home mortgages are made
and processed by primary market lenders and these mortgages
are often insured and/ or sold to “secondary market” institutions.
Although the types of lenders originating mortgages are
growing, there are five categories of “primary market” lenders
active in the residential lending market. They include:
Commercial Banks that primarily specialize in consumer
and construction lending.
Savings and Thrift Institutions that provide residential
mortgages.They are regulated and their deposits are insured
by FDIC (Federal Deposit Insurance Corporation) or corresponding
Mortgage Bankers that are independent firms or subsidiaries
of commercial banks that originate mortgages.They focus
exclusively on providing mortgages and they do not accept
deposits. They typically originate mortgages and then sell
them to other financial institutions. These purchasers
constitute the “secondary market”. Mortgage
Bankers are not federally regulated like commercial banks.
Credit Unions that are private banking organizations that
frequently have very good mortgage rates for its members.A
number of credit unions will offer first mortgages to its
members. Credit unions are generally regulated by federal
or state agencies.
You should use the services of the lender that best suit’s
your needs based on location, type of products offered,
and the quality of service they provide.
The term “secondary market” refers to financial
institutions that purchase mortgage loans originated by
other lenders. They are often large banks, life insurance
companies, pension funds and federally or state chartered
institutions. The most significant purchasers of mortgages
on the secondary market are Fannie Mae and Freddie Mac.
Both are large, shareholder-owned and privately managed
corporations. They are federally chartered and have federal
statutory obligations to serve the needs of lower income
households and other underserved populations. As a result,
both organizations have made affordable new lending products
available to originating lenders.
Ginnie Mae plays a similar role as Fannie Mae and Freddie
Mac. They all purchase government insured or financed mortgages.
However, unlike Fannie Mae and Freddie Mac which are quasi
government corporations, Ginnie Mae is a government corporation
under the jurisdiction of the Department of Housing and
Urban Development (HUD).
The secondary market allow lenders that originate residential
mortgages to sell some or all of their portfolio to secondary
market purchasers. By doing so, lenders can replenish their
cash so that additional financing can be made available.
The underwriting and other criteria set by the secondary
market great impacts the lending practice of most mortgage
lenders. In today's mortgage market most loans end up sold
in a secondary market. This fact becomes particularly important
if you try to get your mortgage through a local lender
only to find that the local lender sold the loan to a national
company. Sometimes even when a local lender sells the loan
they keep the "sevicing" so you can retain your local contacts
even if the loan has been sold. If you want to keep things
local make sure you ask pointed questions to make sure
you end up getting the mortgage loan you expect.