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About Wholesale Mortgage Lenders
When you want to purchase a home or want to refinance a mortgage, there are options for both retail and wholesale lending.
A wholesale mortgage lender often works with mortgage brokers who connect with you to find the right loan They sometimes get a discounted rate for you through the wholesale lender and then prepare your loan application.
What is a Wholesale Mortgage Lender?
An institution that funds mortgages and offers them to third parties, such as a bank, credit union, mortgage broker, or independent mortgage company or professional is called wholesale mortgage lenders.
In the case of wholesale lending, the borrower doesn’t have any direct contact with the lender; the borrower connects with the third party (a mortgage broker), this broker is responsible for arranging the loan origination and application process, and keeping the borrower updated throughout underwriting.
These third parties get to know what their loan options and terms are, from the wholesale lender and the third party then matches borrowers with an appropriate loan.
And once the loans close, wholesale lenders sell them in the secondary mortgage market which is a huge marketplace of banks, investors, and financial institutions that trades mortgages and mortgage-backed securities to free up their capital and move it further to fund additional mortgages.
When you are working with a mortgage broker, the broker is most likely to have tie-ups with wholesale lenders and must be having access to a range of competitive rates and more flexible loan options and requirements.
If you’re keen on getting the best mortgage rate and having someone who can guide you through the lending process, the broker and wholesale lender could be a good option for you.
Difference Between a Wholesale and Direct, Hard money and Portfolio lenders
Wholesale mortgage lenders are different from other types of lenders because they don’t deal with borrowers directly.
Direct or retail mortgage lender – institutions that offer loan products directly to borrowers are the direct or retail mortgage lenders.
Big banks, such as Bank of America or Chase, credit unions, non-depository institutions; or digital lenders like SoFi could be termed as the direct or retail mortgage lender.
Along with loans, they can have other offerings as well, like a savings account or investment options. Compared to a wholesale lender Some of these traditional direct lenders, like banks, might have more stringent requirements.
Other lenders like an online mortgage company, could have more flexibility, and even lower rates.
Portfolio mortgage lender – instead of offloading the loan in the secondary market a portfolio mortgage lender funds and hold onto a loan once it closes, unlike the wholesale mortgage lenders.
A portfolio lender might be able to qualify a borrower who doesn’t fit the standards needed to sell it because they’re not selling the portfolio loan. Which could mean easier approval and more favorable rates.
Hard money mortgage lender – If you can not get approved for another type of loan or need funds quickly then the borrowers can use a fix-and-flip investor who is called a hard money mortgage lender who offers you bridge loans.
When an individual or a company with large reserves of cash lend out in short order they are a hard money lender so they tend to be more flexible and close loans much faster.
However, the hard money lender usually charges a higher origination fee and interest rates in the double digits, making it a costlier affair, this should be considered as a last-resort option compared to a wholesale lender.
Should You Go Wholesale?
If your credit history is less than stellar or not excellent then getting a mortgage from a wholesale mortgage lender might be a good option, since a mortgage broker or other third party could get you approved under less strict requirements because they have a relationship with the lender.
You need to work with the broker to complete all of the steps in the application process, then the broker will coordinate with the wholesale lender for approval.
since the broker can shop around for you using their wholesale lender contacts they will also be able to help you find competitive rates and terms.
Instead of doing all the research yourself, a broker working on your behalf in this sense could save you time as well.
However, as you’re not working directly with a wholesale lender, communication could be slower depending on the broker you’re working with.
In addition, check if the broker is charging any fees although the majority of brokers don’t charge a fee, there are some who do. As you weigh your options be sure to compare this cost to those of other lenders.
How to find a Wholesale Mortgage
Because you cannot contact a wholesale mortgage lender directly by yourself, you’ll need to contact a mortgage broker or other institution that is working in wholesale mortgages.
A broker can guide you and find the loan that is best for you and compare terms and rates across multiple wholesale lenders.
Conclusion
Mortgages aren’t all that different and many lenders offer almost the same loan products, regardless of the channel in which they are obtained.
Though how and where you get one can make a big difference in terms of interest rate and closing costs and saving money it is always advisable to understand the nuances so you get a better idea of the mortgage ecosystem.
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