Real Estate Glossary

A lender is a financial institution or individual that provides money to borrowers in the form of a loan. In real estate, lenders most commonly provide mortgage loans to people who want to purchase, refinance, or build a home. The money lent is repaid over time, usually with interest, under the terms agreed upon in the loan contract.

In a real estate transaction, the lender plays a central role by making the purchase possible when the buyer does not pay the full price in cash.

How Real Estate Lending Works

In real estate, most loans are structured as mortgages. A mortgage is a loan that is secured by the property being purchased. This means the property itself acts as collateral. If the borrower fails to make payments according to the loan agreement, the lender has the legal right to take possession of the property through a process known as foreclosure.

Because the loan is tied to the property, lenders carefully evaluate both the borrower and the real estate before approving financing.

Types of Real Estate Lenders

There are several types of lenders in the real estate market. Commercial banks are among the most common and often offer a wide range of mortgage products. Credit unions also provide mortgages, sometimes with more favorable terms for their members.

Mortgage companies specialize specifically in home loans and often work with borrowers to originate and process mortgages, sometimes selling them to larger institutions after closing. Savings and loan associations traditionally focus on residential lending, while private lenders and individuals may offer loans in specific situations, such as investment or short-term financing.

Each lender type may have different qualification standards, interest rates, fees, and loan options.

How Lenders Make Money

Lenders earn money primarily through interest charged on loans. Interest is the cost borrowers pay for using the lender's money. Because mortgages usually have long repayment periods, often 15 to 30 years, the total interest paid over time can be substantial.

In addition to interest, lenders may charge fees such as origination fees, underwriting fees, and closing costs. These fees help cover administrative costs and compensate the lender for processing the loan.

The Underwriting Process

When someone applies for a mortgage, the lender evaluates the risk of lending money through a process called underwriting. During underwriting, the lender reviews the borrower's credit history, income, employment stability, existing debts, and overall financial profile.

The lender also assesses the value of the property through an appraisal to ensure it supports the loan amount. This process helps the lender determine whether to approve the loan and what terms to offer, including the interest rate, loan amount, and repayment period.

Why Lenders Matter in Real Estate

Lenders are essential to the real estate market because they provide access to capital. Without lenders, most buyers would not be able to afford homes, and property transactions would slow dramatically.

For buyers, choosing the right lender can impact monthly payments, total loan cost, and long-term financial stability. For sellers and agents, reliable lenders help ensure transactions close smoothly and on time.

In simple terms, a lender is the financial engine behind most real estate purchases, making homeownership and property investment possible through structured, secured loans.