When you decide to buy a home and apply for a mortgage, you enter the primary mortgage market — the initial stage where the mortgage is created between you and a lender. This market includes banks, credit unions, mortgage bankers, and mortgage brokers who work directly with borrowers to originate home loans.
In the primary mortgage market, the typical process starts with you submitting a mortgage application (often the Uniform Residential Loan Application, Form 1003), followed by underwriting, where your financial information such as credit score, income, debts, and the home’s appraisal are verified. Once approved, you proceed to closing, sign the loan documents, and the lender funds the mortgage.
Key participants include:
- Banks and Credit Unions: Depository institutions that use customer deposits to fund mortgages and often service the loans.
- Mortgage Bankers: Companies that originate loans using their own capital and frequently sell these loans on the secondary market.
- Mortgage Brokers: Intermediaries who connect borrowers with multiple lenders but do not lend money themselves. Learn more about mortgage brokers.
The primary mortgage market contrasts with the secondary mortgage market, where existing loans are bought and sold among investors such as Fannie Mae and Freddie Mac. Although your loan may be sold, the terms remain unchanged except for the entity collecting payments. For more about this, visit our secondary mortgage market explanation.
To succeed in the primary market, shop around by comparing Loan Estimate forms from several lenders, including banks and brokers. Getting pre-approved helps demonstrate your buying power, and asking questions ensures you understand fees and terms.
According to the Consumer Financial Protection Bureau, lenders set interest rates based on market conditions and your financial profile, which explains why rates vary.
For detailed guides, see our articles on mortgage bankers vs. brokers and the mortgage loan cycle.
References:
- Consumer Financial Protection Bureau on mortgage market roles: https://www.consumerfinance.gov/ask-cfpb/whats-the-difference-between-a-mortgage-banker-a-mortgage-broker-and-a-direct-lender-en-1798/
- Investopedia on primary vs. secondary mortgage markets: https://www.investopedia.com/articles/investing/090314/primary-vs-secondary-mortgage-market.asp
- NerdWallet guide on how to get a mortgage: https://www.nerdwallet.com/article/mortgages/how-to-get-a-mortgage
External resources:
- IRS details on mortgage interest: https://www.irs.gov/taxtopics/tc505