Getting a letter or email from your mortgage company telling you that your loan has been sold can be shocking and concerning. You’ve just purchased a new house, why is your loan being sold and why so soon? What does it mean for you?
The most important thing to remember is that loans are bought and sold all the time. It’s very common in the mortgage industry and is part of how banks and mortgage lenders stay afloat.
Managing thousands of loans comes with risk. Risk comes from homeowners being unable to pay their monthly payments for any reason, bankruptcies, or foreclosures. All these conditions translate to the mortgage lender losing money. Mortgage lenders can reduce some of this risk by selling many of those loans to other lenders. During this sale, the original lender sells the loan to another lender for a percentage of the loan as commission. This equals out the risk for both lenders.
When you buy a home, you don’t typically pay for the whole thing in cash. A mortgage loan is involved – but someone must pay for the house in full. When your loan was approved, your lender paid for your home out of pocket with the understanding that you will pay them back for it. Each loan approved is one more home the lender purchases. Eventually, money would run out entirely since mortgages are often paid off in 30 years. By selling loans, lenders can keep some of their money liquidated in order to pay salaries and buy more homes for their clients.