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.

What is a wholesale mortgage lender?

First things first: what is a wholesale 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 keeping the lines of communication open throughout 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 additional mortgages.

If you’re working with a mortgage broker, they is likely to have existing relationships with wholesale lenders, and could have access to a range of 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/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, while retail lenders tend to offer other financial products as well, like lines of credit, checking accounts and business loans.

Other types of mortgage lenders

Wholesale mortgage lenders don’t deal with borrowers directly, so they’re different from other types of lenders.

  • Direct or retail mortgage lenders – institutions that offer loan products directly to borrowers. These can include big banks, such as Bank of America or Chase; credit unions; non-depository institutions; or digital lenders like SoFi. They can have other offerings in addition to loans, as well, such as a savings account or investment options. If you have an existing relationship with one of these companies, you might enjoy the convenience of using them for your mortgage as well. However, some of the more traditional direct lenders, like banks, might have more stringent requirements compared to a wholesale lender. Others, like an online mortgage company, might have more flexibility, and even lower rates.
  • Portfolio mortgage lenders can be a direct lender or other type of lender; they generally originate the loans they offer. The key is that instead of offloading a mortgage in the secondary market once it closes, they hold onto it (keep it in their portfolio — hence the name). Because they’re not selling the portfolio loan, a portfolio lender might be able to qualify a borrower who doesn’t fit the standards typically needed to sell it. This could mean easier approval odds or more favorable rates.
  • Correspondent lenders are similar to wholesale lenders. They also sell loans on the secondary market (after they’ve originated and funded them). The main difference between wholesale vs correspondent lending is that wholesale companies don’t interact with customers, while correspondent lenders often do – up until their loan is sold. They may also continue servicing the loan.
  • Hard money mortgage lenders offer hard money loans (also called bridge loans) for borrowers who can’t get approved for another type of loan or need funds quickly, such as a fix-and-flip investor. A hard money lender is generally an individual or a company with large cash reserves to lend out in short order, so they tend to be more flexible and close loans much faster. However, hard money lenders also usually charge a higher origination fee and interest rates in the double digits, making this a costlier, last-resort option compared to a wholesale lender.

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. You’ll work with the broker to complete all of the steps in the application process, and the broker will coordinate with the wholesale lender for approval.

A broker will also be able to help you find competitive rates and terms, since they can shop around for you using their wholesale lender contacts. 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 the majority of 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.

Final word on wholesale mortgage lenders

Exploring wholesale lending opens up a whole new financing world to you. But to find the right mortgage lender, you’ll need to consider what’s most important to you. On the one hand, wholesale lenders can offer cheaper rates and less strict approval requirements, but remember that you’ll have to work with a third party to receive these benefits. If you’d rather borrow straight from a bank or other financial institution, dealing directly with the person holding the purse strings, consider using a direct lender.

No matter which type of mortgage lender you choose, take the time to shop around and compare your options to make sure that you’re getting the best possible rate and terms.

Additional reporting by Taylor Freitas