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The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: David Schalliol/Getty Images June 07, 2021 Checkmark Bankrate logo How is this page expert verified? At Bankrate, we take the accuracy of our content seriously. "Expert verified" means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. Peter G. Miller is a contributing writer at Bankrate. Peter writes about mortgage rates and home buying. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. InstaMortgage (formerly Arcus Lending) CEO Shashank Shekhar is a top 15 loan officer and has been named the No. 4 broker in the country. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. What is a correspondent lender
Imagine someone sends you a birthday card. Both you and the sender are correspondents in communication with one another. In the mortgage world, the lender you know and the buyer or investor who purchases your loan are also in communication with one another. Both can be seen as correspondent lenders. You might think of a correspondent lender as a , , or direct lender such as a bank, credit union or insurance company. Since each have the ability to provide mortgages, they might seem similar, but behind the scenes, they also have the ability to engage in correspondent transactions, such as selling your loan to a buyer like Fannie Mae, Freddie Mac, Ginnie Mae, a pension fund, insurance company or other investor in the . How correspondent lending works
Let’s explore what would happen in a correspondent transaction if you were looking for a $300,000 mortgage. Say you shop around and speak with a number of retail lenders. These are lenders who work directly with the public. You could have found them online or through a friend’s recommendation or an advertisement, or one might have been the source of your last mortgage. While borrowers see a $300,000 mortgage as debt, lenders see the same mortgage as a $300,000 asset that can be sold. Here’s an interesting fact: The retail lender usually does not want to keep your $300,000 loan. Why? The lender has limited capital, or no capital, and wants to originate more loans. By selling the loan, your retail lender now recoups its $300,000, and with new capital, it can make additional loans that generate new fees and charges. (In many cases, the origination of your mortgage and its sale take place simultaneously at settlement, a process called table funding.) We can now take the basic retail model and turn it around. Instead of a retail lender who needs capital, there might be a mortgage investor that needs more loans. The investor, sometimes called a , can say, “I have $10 million. I will buy loans from approved lenders if they meet certain standards.” These standards might be FHA or VA standards, or conforming standards, mortgages that meet Fannie Mae and Freddie Mac requirements. Sometimes, investors will want nonconforming loans such as jumbo mortgages. Whatever the case, the retail lender must meet the investor’s requirements. This is one reason why lenders are so careful with borrower information, why they ask so many questions and want so much documentation. Who funds a correspondent mortgage
When you go to closing, your lender delivers the promised funds. This can happen in several ways: The retail lender puts up the mortgage money and then immediately turns around at closing and sells the loan to an investor. This is often how mortgage bankers and direct lenders work. The investor or wholesaler funds the loan. This is typically how mortgage brokers work — they do not have cash to fund their own loans, so they essentially act as retail outlets for direct lenders and others with cash. A direct lender with cash — perhaps a bank — funds the loan and keeps it. This is known as . Correspondent lending pros and cons
The big advantage with correspondent lending is that an individual retail lender can offer a wide variety of mortgages. This gives the lender the best opportunity to fully match your needs with the mortgage options that are out there, but perhaps unknown to other lenders. A correspondent lender could have dozens of relationships with potential loan sources. These sources offer loans that are often different in one way or another from what other sources provide. For instance, one wholesaler could allow a borrower to have a 50 percent debt-to-income (DTI) ratio, while another will only go as high as 47 percent. A correspondent lender searches through wholesaler guidelines to find the mortgage source most likely to accept you as a borrower. In theory, though, a direct lender such as a bank, credit union or mortgage banker can only sell the loan products it wants to fund. This appears to be a negative, because it suggests that mortgage options from a direct lender are limited. However, there’s a lot of crossover in the mortgage business. A bank, mortgage banker or credit union might act as a correspondent lender by selling the mortgage products of other direct lenders. Other types of mortgage lenders
Direct lenders – A direct lender has the cash to fund your mortgage, such as a bank, credit union or insurance company. Because a direct lender has money, it can determine whether you qualify for financing on the basis of its own standards. Mortgage bankers – Mortgage bankers have the cash necessary to fund the loans they originate. They can originate loans on their own and sell them to investors, or they can originate loans that are funded by a third party. Mortgage brokers – Not every retail lender has the money to finance your mortgage. A mortgage broker represents investors and other loan sources who supply the cash. The loan must meet the requirements established by the cash source. Portfolio lenders – A direct lender can keep your loan or sell it in the secondary market or directly to an investor. If a lender keeps your loan, it’s a “portfolio” lender because your loan becomes an asset on its books. The requirements for portfolio loans are not necessarily the same as typical mortgage products because the portfolio lender is not reselling the debt, so it can sometimes offer better financing options for borrowers who don’t quite meet usual underwriting standards. Wholesale lenders – As the borrower, you don’t actually do business directly with a wholesaler. Wholesale lenders provide cash to retail lenders. They set the underwriting guidelines and either fund the loan at closing or buy the loan from retailers. How to find the best mortgage lender
Check your credit reports. A high credit score generally means a lower mortgage rate. Check your credit reports to ensure there are no factual errors or out-of-date items. Here’s some good news: You can now check your credit scores weekly without cost through April 20, 2022, at . Compare APRs and fees. The mortgage business is very competitive. If you see interest rates that seem especially low, check the fine print for fees and charges. They’re a real cost, regardless of what they’re called. Get . It . You want to know about rates and terms, but you also want to know if you can realistically qualify for a given loan amount. Get preapproved by one or more lenders to see how much you can borrow. Be sure to work with loan officers who ask for your tax records and other financial information so that you get a realistic assessment of what you’d qualify for. Learn more
SHARE: Peter G. Miller is a contributing writer at Bankrate. Peter writes about mortgage rates and home buying. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. InstaMortgage (formerly Arcus Lending) CEO Shashank Shekhar is a top 15 loan officer and has been named the No. 4 broker in the country. Related Articles