As a home buyer, you may find the best mortgage rates and a more personal loan experience by working with a wholesale mortgage lender. Unfortunately, many borrowers do not realize that there are many types of lenders that deal with mortgages and refinance loans, from direct lenders and retail lenders to brokers and wholesale lenders.
If you want to get the best deal on a loan, or you have unique circumstances you need to address, it is important to understand your options.
wholesale mortgage lenders are banks or financial institutions that do not deal directly with customers. Instead, wholesalers make loans through mortgage brokers, credit unions, or other banks. This can be confusing, because many large banks also have retail operations that work with customers.
If you work with a wholesale lender, they will be making the loan, and the wholesale lender's name will appear on loan documents. The third party, such as a mortgage broker, works as an agent for a fee. Think of the third party in this arrangement as a matchmaker. The mortgage broker works to pair the borrower with the right lender and loan program, reviewing the borrower's information to find the best loan with the lowest rate.
Wholesale lenders are similar to mortgage bankers because they originate and service the mortgages and sell them on the secondary market. Once the third party secures the deal, it is sent to the wholesaler for underwriting, processing, and funding.
There are many benefits to getting a mortgage from a wholesale lender. It is usually easier for the lender to offer a lower interest rate in this scenario through something known as Yield Spread Premium, a form of compensation mortgage brokers receive from the lender that is paid by the wholesaler to keep the borrower from paying higher loan processing fees. Because the loans are then sold on the secondary market in a month or so, the loan has a lower risk, offering more incentive to give consumers a better interest rate.
If you go this route, you will not work with a mortgage banker, but more typically an independent mortgage broker. Many borrowers prefer this more personalized loan experience rather than walking into a large retail bank. Your mortgage broker works with you to customize your loan and help you choose the best lender and loan option.
Retail lenders, on the other hand, issue loans directly to the consumers rather than institutions. Such retail lenders include banks, credit unions, mortgage bankers, and savings and loans institutions. This is the type of situation most buyers are familiar with.
You have a few choices in terms mortgage brokers. An upfront mortgage broker is usually the best option. In this scenario, the broker will receive a fixed compensation, with the ability to combine interest rates and points. As the broker gets a fixed amount of compensation regardless of which lender or loan you choose, you will be certain that they are not hiding any payments they get to push you to work with one mortgage lender over another.