What Are Wholesale Mortgage Lenders?

What Is a Wholesale Mortgage Lender?

Wholesale mortgage lenders are one of several types of mortgage lenders that offer home loans. But unlike retail mortgage lenders, who work directly with borrowers to help them find a home loan, wholesale mortgage lenders rarely have direct contact with borrowers. Instead, they offer mortgage loans through third parties, like other financial institutions or mortgage brokers. In some cases, a financial institution may have both a retail division and a wholesale division.

Wholesale mortgage lenders technically own the loans and get to set the rates and terms, but they don't participate in the application and underwriting processes. And once a wholesale mortgage loan closes, it's common for the loan to be sold on the secondary mortgage market in order to fund additional mortgages.

Learn more: What Are the Different Types of Mortgage Lenders?

How Wholesale Mortgage Lending Works

The process to apply for a wholesale mortgage is similar to a retail mortgage. But instead of working with the lender directly, you'll need to work with a mortgage broker or other third party when you apply for a wholesale mortgage.

Serving as the bridge between you and the lenders, mortgage brokers will gather documents, help you find the best loan options, submit applications and stick by through underwriting and closing. The process may vary a bit, depending on the mortgage broker, or other third party offering wholesale mortgages, but you can typically expect the following steps in wholesale mortgage lending:

1. Shop around for a wholesale mortgage lender. Research different third parties that offer wholesale lending. Consider independent licensed mortgage brokers, who may represent multiple wholesale lenders, or banks and credit unions that represent wholesale lenders.
2. Choose a home loan. A mortgage broker, or financial institution offering wholesale lending, can help you find the best loan for your financial situation and borrowing needs.
3. Get a preapproval letter. The mortgage broker or other representative submits information to the wholesale lender, like proof of income and your current assets, to determine what loan amount, rates and term you may qualify for. They'll also perform a hard credit check.
4. Find a house and make and offer. With a preapproval letter in hand, you can start looking for your new home and submit an offer.
5. Submit your mortgage application. After your offer is accepted by the seller, your broker or representative will submit your mortgage loan application to the wholesale lender. Be ready to provide additional documentation as needed.
6. Wait out the underwriting process. Some wholesale lenders may approve your application within 15 days, but it could take several months. During this time, your mortgage broker or representative will stay in touch with you and may request additional information for the lender.
7. Prepare for closing. Your mortgage broker or representative will help you navigate the closing process. They'll run a final credit check and make sure you have funds on hand for closing costs.

Wholesale vs. Retail Mortgage Lenders

Wholesale lenders offer loans through third parties, while retail mortgage lenders work directly with borrowers to offer mortgage loans. Here are a few other key differences.

• Additional products: Retail mortgage lenders sometimes offer other financial products and services, like bank accounts, credit cards or other loan options. But wholesale mortgage lenders only offer mortgages.
• Availability: Wholesale mortgages and retail mortgages are both available from banks, credit unions and other financial institutions.
• Loan programs: Wholesale mortgage lenders may offer a wider variety of home loan programs than retail mortgage lenders. This may be beneficial if you live in an area without a lot of brick-and-mortar financial institutions.
• Eligibility: Retail mortgage lenders often have stricter requirements than wholesale home loans.

Pros and Cons of Wholesale Mortgage Lending

Getting a home loan with a wholesale mortgage is fairly common. But it's still important to weigh the pros and cons if you're considering wholesale lending to finance your home purchase.

Should You Get a Loan Through a Wholesale Mortgage Lender?

A home loan from a wholesale mortgage lender might be a good option in the following situations:

• You have less-than-stellar credit. Eligibility requirements tend to be less strict for loans from wholesale lenders. So if your credit isn't perfect, it may be easier to qualify.
• You want better terms. Wholesale lenders spend less on advertising and other overhead. This means they often charge less for their loans and closing costs.
• You want support during the loan process. First-time homebuyers may appreciate the individualized guidance mortgage brokers provide. But if you want the convenience of an app or online application, you may prefer a retail lender.

Build Your Credit Before Applying With a Wholesale Lender

If you're considering buying a home with a wholesale mortgage lender, it's important to evaluate your credit long before you begin the process. You can get free access to your Experian credit report and FICO^® Score^☉ to get a feel for where you stand.

Reviewing your credit report can help you identify areas to take action if your credit score needs some work. Some ways to boost your credit may include paying down credit card balances or catching up on past-due payments.

Be sure to track your progress and continue practicing other good credit habits to save on your home loan.