What Is A Wholesale Mortgage Lender? Everything You Need To Know – Forbes Advisor – Technologist

For most people, buying a house means getting a mortgage. If you’re shopping for a home loan, you have many options, including banks, credit unions and online lenders. However, you may not realize that lenders also fall into two categories: retail and wholesale.

Both retail and wholesale lenders offer loans to finance residential homes, but they’re marketed through different channels. Before you settle on a mortgage lender, it’s important that you understand the difference between the two.

What Is a Wholesale Mortgage Lender?

A wholesale mortgage lender is one that offers home loans to a third party. For instance, wholesale mortgage lenders frequently partner with banks and credit unions to make their products available to consumers. Commonly, they offer loans exclusively through mortgage brokers.

Unlike retail mortgages—which are marketed directly by lenders to consumers—you can’t apply for a loan from a wholesale mortgage lender on your own. You’ll need to work with one of the company’s third-party partners.

How Wholesale Lending Works

Both wholesale and retail lending follow the same general process:

• Borrowers submit an application with supporting documentation regarding income and assets. The lender then underwrites the borrower’s application and either approves or denies it.
• A home appraisal—and often a home inspection—takes place.
• At closing, the borrower makes a down payment, signs paperwork and uses funds from the mortgage lender to complete the sale.

However, with wholesale lending, the borrower typically doesn’t have any communication with the wholesale lender itself. Instead, an intermediary collects paperwork and submits it to the lender. Most often, the intermediary is a mortgage broker.

Mortgage brokers may work with several lenders to find the best product and rates for a borrower. However, banks and credit unions can also serve in this function. For instance, if a credit union is too small to finance its own mortgages, it may partner with a wholesale lender to make home loans available to its members.

Wholesale vs. Retail Mortgage Lenders

While some companies focus exclusively on wholesale lending or retail lending, some businesses offer both. For instance, note the overlap in the top 10 wholesale and retail lenders for 2023, according to production data compiled by Scotsman Guide, a provider of information and tools for mortgage originators.

Retail lenders may have wholesale divisions that work with mortgage brokers while also maintaining offices and staff that take applications directly from consumers. Still, the largest wholesale lender in the nation—United Wholesale Mortgage (UWM)—does 100% of its business in the wholesale market.

The Role of Mortgage Brokers in Wholesale Lending

Mortgage brokers are independent workers and not employed by any specific lender. They may work with a variety of companies and could have access to loan products not available through retail lending channels.

Typically, a mortgage broker is responsible for the following:

• Collecting the information and documentation needed to complete an application
• Comparing mortgage products to determine which options are best for a borrower’s needs
• Working with the borrower and lender to close the sale

A mortgage broker doesn’t fund the loan and isn’t involved in collecting payments or managing an account after the closing date. Their role is simply to connect borrowers and lenders and help ensure a smooth sales process.

Pros and Cons of Wholesale Mortgage Lending

Like all financial products, there are advantages and disadvantages to using wholesale lending to purchase a home.

Pros of Wholesale Lending

• Ease of comparison shopping. If you’re using a mortgage broker, they’ll do all the legwork when it comes to finding and comparing mortgage products. This will save considerable time and effort on your end.
• Potentially more lending options. Wholesale mortgage lenders may offer products with different rates and terms than what is available from retail lenders. They may also have more options for borrowers with lower credit scores.
• Possible savings. Mortgage rates may be competitive, and representatives of wholesale mortgage lenders—including UWM—say borrowers getting a loan via a wholesale lender can save thousands of dollars over the course of a 30-year mortgage. However, some organizations dispute this claim. So while there may be cost savings in using a wholesale lender, do your own math when shopping for a mortgage to be sure.

Cons of Wholesale Lending

• Potentially higher fees. Mortgage brokers don’t work for free, and while wholesale lenders pay their commissions, that expense could get rolled into the cost of your loan.
• Multiple parties. Instead of working directly with the lender, you’ll need to facilitate the loan through a mortgage broker. This may cause a lag in communication and lead to inefficiencies in the loan process.
• May make account management less convenient. Some people find it more convenient to do all their banking in one place. However, if you’re pursuing a home loan through a wholesale lender, your mortgage will likely be with a new institution rather than your primary bank or credit union.

Is Wholesale Mortgage Lending Right for You?

Since wholesale lenders don’t work directly with borrowers, the real question here is should you work with a mortgage broker? While brokers provide a valuable service, some people prefer to work directly with a lender.

Using a mortgage broker can make sense in the following situations:

• You have limited time to compare mortgage rates and terms
• You don’t have a bank or lender preference for your mortgage
• You live in an area with a limited number of mortgage lenders

If you do decide to work with a mortgage broker, ask your family and friends for referrals and consider speaking to several brokers before selecting one. Find out what fees they charge and how long it generally takes them to process a loan.