A confusing part throughout the mortgage process is confronting the many different types of lenders that deal with home loans and refinances. Here are the main types of mortgage lenders to help you get started.
Wholesale lenders are banks or other institutions who do not deal directly with consumers. Instead, they will offer their loans through third-party companies. This includes companies such as mortgage brokers, credit unions, or other banks. A wholesale lender is the one making the loan, and their name will appear on loan documents. The third-party acts as an agent.
Retail lenders are lenders who issue mortgages directly to individual consumers. In this case, they either lender their own money or act as the agent. Retail lending may be a function that is offered by a larger financial institution. The larger institution may offer commercial, institutional, and wholesale lending in addition to other financial services.
Warehouse lenders are similar to wholesale lenders. However, instead of providing loans through intermediaries, they lend money to banks or other lenders to issue their own loans on their own terms. The lender gets repaid once the intermediary sells the loan to an investor.
Portfolio lenders use their own money to make loans, which are maintained on their books, or portfolios. These lenders have the benefit of setting their own terms since they don’t have to satisfy the demands of outside investors. Portfolio lenders are a good choice for non-typical borrowers, such as those looking for a jumbo loan, who have a unique property or have a flawed credit but strong finances. It’s possible that you will pay higher rates for this type of lender.
Correspondent lenders are defined by what happens after the loan is issued. They work with an investor, either Freddie Mac or Fannie Mae. They earn money by collecting a point when the mortgage gets issued. These lenders sell the loan immediately to ensure they get money. This is because once the loan is sold, the correspondent no longer carries the risk of default.