When searching for different types of mortgages in KC, you will likely come across the term “secondary mortgage market.” For many homebuyers, secondary mortgages are a foreign concept. Luckily, it is easy to understand secondary mortgages in KC once you know the basics of the primary mortgage market.
The Primary Mortgage Market Loan Process
In short, the primary market is where mortgages in KC are originated. When a homebuyer applies for a mortgage in KC, they contact a mortgage lender or another institution in the primary mortgage market. The primary mortgage market consists of:
- Mortgage companies
- Credit unions
- Online lenders
These types of organizations provide the loan to a homebuyer if they meet certain requirements. After the approval process, the lender will fund the purchase of the home and the borrower will agree to pay back the mortgage within the specified terms of the loan.
How the Secondary Market for Mortgages in KC Works
Essentially, the secondary market buys and manages mortgages from the primary market. Primary lenders sell loans in the secondary mortgage market and use the proceeds to make new loans to other homebuyers.
Secondary market organizations such as Freddie Mac or Fannie Mae package the loans into mortgage-backed securities such as:
- Pension funds
- Insurance companies
- Hedge funds
Once created, these securities are sold to investors.
Benefits of the Secondary Mortgage Market
The secondary mortgage market plays an important role in the housing and lending market by:
- Making credit equally available to all potential borrowers
- Allowing mortgage lenders to replenish their cash reserves so they are able to originate more mortgages in KC
- Driving down mortgage rates to make homeownership more affordable for homebuyers
- Giving mortgage originators in any location access to pools of funds, which allows homebuyers from small towns or major cities to have greater access to affordable mortgage financing