Key takeaways

  • A wholesale mortgage lender is an institution that funds mortgages and offers them to third parties, such as a bank or credit union.
  • Wholesale mortgage lending differs from other mortgage options in that it requires the borrower to work with a middleman instead of the lender.
  • Wholesale lenders can offer cheaper rates and more relaxed eligibility guidelines compared to traditional lenders.

Obtaining a mortgage — whether a purchase loan or a refinance — comes with two basic types of lenders: retail and wholesale. The difference is, while retail lenders work directly with individual borrowers, wholesale mortgage lenders don’t. Instead, they often partner with mortgage brokers, who work with you to find the right loan — sometimes at a discounted rate — and prepare your application.

Based on my experience working with a mortgage broker and a wholesale lender, here’s what to know about wholesale lending and what to expect if you choose this lending option.

What is a wholesale mortgage lender?

A wholesale mortgage lender is 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.

How wholesale lending works

In wholesale lending, the borrower typically doesn’t have direct contact with the lender; instead, the borrower interacts with the third party, who is responsible for facilitating the loan origination and application process, and communicating throughout the loan’s underwriting. A wholesale lender lets these third parties know what the loan options and terms are, and the third party then matches borrowers with an appropriate loan.

Once the loans close, wholesale lenders typically sell them in the secondary mortgage market to free up capital to fund more mortgages.

If you’re working with a mortgage broker, they likely have existing relationships with wholesale lenders and could have access to competitive rates and more flexible loan options and requirements. If you’re interested in getting the best mortgage rate and having someone who can walk you through the lending process, the broker and wholesale lender route might be a good fit for you.

Wholesale vs. retail mortgage lenders

While wholesale lenders provide loans through third parties, retail lenders cut out the middleman and connect with borrowers directly.

When working with a retail lender (such as a bank or credit union), borrowers can usually pick from multiple home loan products, which are underwritten, serviced and funded in-house by the lender. In other words, borrowers interact directly with the company that provides their loan — and not a third-party broker.

Another difference in terms of wholesale vs. retail mortgage lenders is that many wholesale mortgage lending companies exclusively focus on home loans. Retail lenders tend to offer other financial products as well, like lines of credit, checking accounts and business loans.

The role of mortgage brokers in wholesale lending

You’ll work with the mortgage broker to complete each step in the application process. Once your application is ready for review, the broker will coordinate with the wholesale lender’s underwriting team for approval.

The broker’s role doesn’t stop with assisting the prospective borrower with their mortgage application. They also work to find you the best deal on a mortgage. Since they can shop your information around to their wholesale lender contacts, you could secure more competitive rates and terms than you would if shopping for a home loan independently.

Wholesale mortgage lending process

Below is an overview of what to expect if you decide to work with a wholesale lender based on my personal experience with the process:

  • Step 1: Connect with the mortgage broker to complete a loan application and gather documentation the wholesale lender needs to make a decision.
  • Step 2: The mortgage broker confirms your application is complete and submits it to the wholesale lender for review.
  • Step 3: Upon receipt, a member of the wholesale lender’s underwriting team analyzes your loan application, along with the supporting documentation, and verifies the entries to make a lending decision.
  • Step 4: If your application is approved, the mortgage broker provides you with a commitment letter from the wholesale lender detailing the loan terms and any applicable conditions.
  • Step 5: The mortgage broker coordinates with the wholesale lender to close and fund your home loan. If there are any conditions the borrower must satisfy for the loan to close, the mortgage broker notifies the borrower during this step.
  • Step 6: Once all conditions are met, the wholesale lender issues the “clear to close” to the mortgage broker, and the broker notifies the borrower. The borrower sends their down payment and the funds for closing costs (which include the broker’s fee if applicable) to the title company shortly before closing.
  • Step 7: At closing, the borrower signs the loan documents to finalize their end of the transaction.
  • Step 8: The wholesale lender closes and funds the home loan.

Pros and cons of wholesale mortgage lending

If you’re considering wholesale mortgage lending, keep these pros and cons in mind to guide your decision:

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Pros of wholesale mortgage lending

  • Broker shops information around to several lenders
  • Less stringent eligibility guidelines
  • Potentially access more competitive rates and flexible loan terms
  • Personalized support from a mortgage broker
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Cons of wholesale mortgage lending

  • No direct contact with the lender
  • Mortgage broker fees (if applicable)
  • Higher likelihood of loan sell-off following closing

Is wholesale mortgage lending right for you?

Getting a mortgage from a wholesale mortgage lender might be a good option if your credit history is less than stellar or unique, since a mortgage broker or other third party has a relationship with the lender and could get you approved under less strict requirements. Because they don’t have to spend a lot on advertising, public relations and overhead, wholesale lenders might offer better terms and fewer fees.

However, since you’re not directly in touch with a wholesale lender, communication could be slower depending on the intermediary you’re working with. In addition, although most brokers don’t charge a fee, there are some that do. Be sure to compare this cost to those of other lenders as you weigh your options.

Additional reporting by Taylor Freitas