How do people that finance homes make money?

When someone finances a home for someone.... how does the financer make money?

There are numerous ways that people who finance homes make money.

First, they may directly finance the home as either the owner of the real estate to be sold or as a direct private lender who lends to a buyer to buy someone else's real estate. If they are the owner, they make money 1) on the sale price of the home, 2) on the interest payments spread over 10-30 years, and 3) on the "seller's financing premium." The theory behind the seller's financing premium is that you can get a higher price when, as a seller, you finance the sale of your own property, because people who buy AND finance from the seller tend to be people with poor credit who have gotten desperate about getting a loan.

Many local mortgage companies also lend money directly on the sale of local real estate. They can make money in several ways: 1) by collecting an "origination fee," the fee you pay for the professional expertise of the mortgage broker (and this can run from $1500 to $5000 for a modest home loan), 2) by holding the loan and collecting the interest payments over 10-30 years, or 3) by "packaging" or "bundling" so-called "conforming" loans and selling them to investors or banks.

This is the second, and normal way, that companies make money financing a home. Mortgage brokers and banks normally simply find people with reasonable credit, loan them money out of their cash reserves, wait until they have enough loans to package or bundle, then sell those loans to larger concerns (Chase Manhattan, various mutual funds, or hedge funds, etc.) or even private investors. In this sense, packaged home loans trade just like stocks in a market very much like the New York Stock Exchange - and then, once they are owned by a mutual fund company, they may literally trade on the NYSE as a portion of the value of the shares of that mutual fund company.

The third way I alluded to earlier - and that is the collection of fees associated with the loan. State laws now generally regulate these added fees pretty rigidly, but in my days of practicing real estate I have seen some unscrupulous lenders add more than $10,000 in fees to a relatively modest $60,000 loan. These kinds of abuses are (theoretically) rare today, but many brokers make almost all of their money today from a flat origination fee plus whatever they get from selling loans on the investment market.

Finally, there is, in some states, a group of people who do not directly loan money at all, but rather act as a broker or go-between between people who want to loan money and people who want to buy homes. These are mortgage brokers in a real sense, and they make almost all of their money simply by charging fees to the people that they serve. This is an extremely slim sliver of the mortgage market.

By charging interest.

Itr's called interest income.

It's all about the INTEREST baby!!

they charge interrest on the money they loan you . . ..

For the last several months many of them have not been making money, but that is mostly due to extemely poor judgement or perhaps just plain greed with other people's money.

The way money is made is by charging interest on the loan, historically in the 7% to 8% range, but Greenspan took it upon himself to drive those rate down to about 5% by making money cheap in 2001 through 2005. How the money is made is the money is borrowed at about 3% and then relent at about 7%. If you can borrow a couple of billion at 3% and relend it at 7%, you can make a lot of money provided your loans do not go sour.

Check out the spread between the interest rate charged and what the Fed Funds rate is on any given day. There is your answer, less bad debt write-offs and administrative costs. It is very much a margin driven business.

Mortgage lenders are like any other business. They charge a fee for their services, whether it be for a tangible product or an intangible service. The escrow company processing the title insurance, title check, loan set up etc, charges a flat fee at time of closing. The actual financial institution which could be, a bank, a mortgage company or the private individual who is selling the home, carrys your loan and actually owns the home in cause you default. Their fee comes from the monthly interest charge in your monthly payment. This interest amount is most of your payment in the early years and gradually lessens as you own more equity in the home. These monthly Interest charges can triple, or more, the actual selling price of the home after all interest is paid over 30 years. If you default and they foreclose on your mortgage, they now own the home and resell it.

i think they add it into your house cost and there part of it right off the top.

They charge a buttload of interest to have their money. And they get it all back in the first few years.

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