Residential mortgage lending is the provision of loan products to assist with purchases, refinances, and renovations of residential real estate. This includes single family homes along with complexes with up to four units; apartment buildings and other large residential complexes are considered commercial real estate because they are run as income-generating properties, not just used as residences. Many mortgage providers offer residential mortgage lending services to their customers, with a variety of products to meet different needs.
Real estate costs are often high enough that buyers cannot afford to pay cash and must turn to financial assistance to complete a transaction. Mortgages offer a loan to cover the purchase price, using the home itself as collateral for the loan. In the event of default, the lender can seize and sell the home to recoup the costs of the loan.
A large area of residential mortgage lending is origination of new loans for home purchases. Buyers may be purchasing primary residences, investment properties, or vacation homes. In refinance transactions, borrowers take out a loan to repay an outstanding loan and end up with lower interest and monthly payment. Renovation loans provide assistance with financing construction costs for borrowers who need to make repairs or retrofits to a home.
The residential mortgage lending process can be lengthy. Borrowers have to supply information about their finances and the amount of down payment they are prepared to offer. The lender will require appraisals of the property to make sure it is valued reasonably and can request certifications and guarantees. Usually the terms for loan origination include a requirement to insure the home with the lender as a beneficiary of the policy, and may include other stipulations as well, depending on the region.
After a lender generates a loan, it can choose to retain it or sell it to a third party. The secondary market for home loans is very large and includes a variety of investors with an interest in purchasing loan portfolios or shares in portfolios. For lenders, loan sales free up capital to make new loans, while investors benefit from either reselling the loans themselves, or holding them and profiting from interest and other fees.
Work in the residential mortgage lending industry is quite varied. Brokers, loan officers, accountants, home inspectors, and other professionals all play a role in the process of generating a new home loan. Skilled personnel can easily transfer between institutions to take advantage of new job opportunities.