With all the different players in the
mortgage industry, at some point you've probably wondered just who
plays which role in the long process of getting a mortgage. Given the
fact that most real estate professionals are still fuzzy on this
topic, it goes without saying that it can all be very confusing. In
this article we will discuss the role of a mortgage lender, as well as some common practices that occur in the mortgage lending business.
A mortgage lender can be defined as any institution or individual who lends a sum of money to another institution or individual for the purpose of purchasing real property. Usually, the money is required to be repaid in a series of consecutive monthly payments. So far, the described concept is simple. Where it starts to get complicated is in determining the conditions and the terms under which the money will be loaned.
Any borrower, such as yourself, can be penalized or rejected by a lender if you do not live up to its particular standards for lending money. These standards, referred to as "underwriting guidelines", are intended to determine how much of a credit risk you pose. You will not be approved if you fail to meet the minimum requirements. Private mortgage lenders, of course, are not subject to any underwriting guidelines other than their own personal criteria.
The interesting part is that these underwriting guidelines are not determined solely by the lender. This is because the lender bases its guidelines on its ability to sell your loan to other lenders. Most lenders will not loan money unless they know they have an exit strategy â a way to guarantee that they will be able to sell your loan. Portfolio lenders, who keep and service the loans that they originate, are an exception to this rule.
Lenders do not have unlimited funds at their disposal. Loans have to be sold to other lenders in order to free up more money to make more new loans, which can in turn be sold other lenders again. It may be surprising to learn about the recycling component of the mortgage lending business. However, it can help to take some of the mystery out of the decision-making process once you realize that the lender's approval decision is based just as much on the loan's marketability as it is on your financial credentials.