Wholesale Mortgage Lenders: What You Need to Know
Wholesale Mortgage Lenders: What You Need to Know
Wholesale mortgage lenders are organizations which do not cater to the retail end of the mortgage market. Instead, they originate funding for loans, without actually dealing with the people who buy those loans.
Non-Wholesale Lenders
Most mortgage lenders, such as banks, credit unions, and other lending institutions, have what amounts to a wholesale department and a retail department, both within the same organization. The wholesale department originates the loan, while the retail department is represented by the person you actually deal with when you get a mortgage, the person who acts as the “face” of the mortgage lender.
When you get a mortgage from this type of lender, you are borrowing the money from the same organization that you deal with. The person who helps you obtain the mortgage is from the same institution that lends you the money.
Wholesale Lenders and Mortgage Brokers
A wholesale mortgage lender is an entirely different deal. Wholesale lenders do not deal with the public. They do not have representatives who work with you on sorting out the details of the loan. They provide the funding to originate the mortgage, but they are not the ones who work with you when you are a customer looking for a mortgage.
So how does a wholesale lender sell mortgages, if they do not deal with the public? Usually, this is by means of a mortgage broker acting as the intermediary between a wholesale mortgage lender and a person obtaining a mortgage.
Typically, wholesale mortgage lenders offer their mortgage loan products to mortgage brokers at a discount. The mortgage brokers are able to access loans that are lower cost as compared to what you would be able to obtain as a customer of a traditional lending institution such as a bank. For this reason, when you work with a mortgage broker, the fee you pay to the broker does not make your mortgage cost more than if you would have obtained it from a bank: the mortgage broker obtains discount loans from a wholesale lender, and then adds their commission to the total when giving loan quotes to a client.
So, as a client of a mortgage broker, you buy a mortgage that has been discounted by the wholesale lender, but has the broker’s commission added to it: this is usually equal to or less than the cost of the same mortgage from a bank or other conventional lender.
Wholesale mortgage lenders usually originate loans via networks which include traditional lenders, as well as independent brokers. Wholesale lenders tend to offer a very wide range of mortgage types, including conventional loans (both fixed and adjustable rate), home equity loans and lines of credit, government-back loans, jumbo loans, and other alternative and sub-prime loan types.
Types of Wholesale Mortgage Lenders
Not all wholesale lenders are the same: there are a few different types, and some may be more suitable than others for certain types of mortgages.
A wholesale mortgage lender network is usually a group of professionals that works together, and usually includes lenders, brokers, and professional consultants. For most conventional loan types, this type of network is fine. Second mortgage wholesale lenders are ideal if you need a second mortgage. They tend to offer a range of second mortgage programs with competitive rates, but often have much stricter lending criteria. Online wholesale lenders operate solely online, and with fewer overheads may be able to provide a better deal for a buyer. Sub-prime wholesale lenders offer mortgages for people with low credit scores, at higher interest rates. Most lenders expect a higher deposit from people who apply for sub-prime mortgages.
Pros and Cons of Buying a Loan from a Wholesale Lender
The biggest advantage of obtaining a mortgage from a wholesale lender is that you get to work with a mortgage broker. If you are a first-time home-buyer, this can be especially advantageous. Choosing the right mortgage broker means working with someone who knows the ins-and-outs of the mortgage business, and this can more than make up for your lack of experience.
Even better, however, is that you are working with someone who is working for you. The mortgage broker is an independent contractor, not working for a bank or other lending institution, with no ties or loyalties to anyone other than their own clients.
There can be problems, of course. If you are not working with a bank or other lending institution, you can feel as though your mortgage lender is something of a faceless entity, and you may feel uncertain as to whether it’s a good idea. The potential for problems with overlapping payments, extra payments, or and under-or-overpaying is slightly higher than with a conventional lender.
All that means, however, is that if you work with a broker, it’s important to read your loan agreement and other documents carefully. Hire a lawyer if you feel you need to, it’s always better that these things are not left to chance, no matter what type of lender you choose to work with.
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Category: Mortgage lenders
