Buying a home is one of the major investments in people’s lives. Your home is your castle, right? So you better do it right!
The good news is that various professionals can help you, such as correspondent lenders and mortgage brokers. What’s the difference between a correspondent lender and a broker, though, and what kinds of services can these professionals provide? In this guide, we’ll look at correspondent lenders and see how they compare to mortgage brokers to help you understand the key similarities and differences.
What Is a Correspondent Lender?
A correspondent lender is a unique type of mortgage lender who originates, underwrites, and funds loans, before selling them on to another, larger lender. Correspondent lenders are technically mortgage bankers, albeit small ones, and they usually use their own funds in the form of warehouse credit to originate and fund each loan for their borrowers.
How Does Correspondent Lending Work?
A correspondent lender will fund a loan themselves. They may have the cash on hand already, or they may use a warehouse line of credit to acquire the necessary funds. They can then sell the loan to a bigger lender. The big lender then becomes the loan servicer, but the correspondent may still continue to collect payments from the borrower.
The Pros and Cons of a Correspondent Lender
There are both advantages and disadvantages associated with using a correspondent lender:
- Versatile – One of the main advantages of working with a correspondent lender is that you get more mortgage options. A correspondent lender may work with a range of mortgage investors, opening up lots of possibilities for the borrower and potentially helping you get a better package for your mortgage.
- Speedy – Another big plus point of using a correspondent lender is that the overall process of getting your mortgage may be much faster. Correspondent lenders usually have good networks of investors and a thorough understanding of the mortgage process, helping to speed up the process and avoid any pitfalls or delays.
- Comprehensive – There’s also the fact that correspondent lenders offer a very comprehensive service. They’ll take care of everything from reviewing your application to underwriting your loan, making sure you qualify, and funding the loan, too. This is in contrast to mortgage brokers, who only help you find a good loan.
- Strict – Due to the way that the correspondent lending process works and the fact that it involves selling loans on to mortgage investors, there are lots of rules and policies in place that need to be stuck to. Even a slight oversight or error can lead to loans being sent back to the lenders, causing delays and generating extra costs.
- Costly – Another downside that you need to take into account when working with certain correspondent lenders is the fact that they may charge various fees. Plus, since the mortgage is issued in the name of the lender, they don’t necessarily have to disclose how much their fees are, which can cause some confusion.
What Is a Mortgage Broker?
A mortgage broker, on the other hand, is an individual or company that works to arrange mortgages between their clients (borrowers) and mortgage lenders. They work with their customers to find out the right type of mortgage they need and compare options from different lenders to find the best possible deal to match the specific needs of the borrower.
How Do Mortgage Brokers Work?
The role of a mortgage broker is relatively simple. Their aim is to find the best mortgage deals for their customers. So, they sit down with each customer, find out what kind of mortgage they’re looking for, and then compare options from a range of providers to find one with the best rates and appropriate features to suit the borrower’s needs, for a fee.
The Pros and Cons of a Mortgage Broker
Just like with correspondent lenders, mortgage brokers have their pros and cons:
- Convenient – One of the main reasons why so many people choose to work with mortgage brokers is out of convenience. Instead of spending hours of your own time searching and comparing mortgages, you can hire a broker to take care of it all for you and speed up the process.
- Expert – Even if you decide to search for the best possible mortgage on your own, you may not know exactly how to find it, or you might be unaware of certain aspects of the process. A broker is a true expert who can provide all the benefits of their experience to help you get the right mortgage.
- Valuable – Ultimately, the main purpose of working with a mortgage broker is to get the best value mortgage that suits your specific requirements. Even though you have to pay fees for a broker’s services, you can save a lot of money in the long term by finding a mortgage with attractive rates.
- Costly – One of the downsides of working with a mortgage broker is that they will charge a fee for their services. This is something that borrowers will need to take into account and budget for. And, when added onto the other costs of purchasing a property, it can be a tricky sum to cover.
- Limited – Another possible problem of working with some mortgage brokers is that even if they are able to search for mortgages from lots of different lenders, they may still be limited in terms of which lenders they search with and which products are available and accessible to them.
Correspondent Lender vs Mortgage Broker: Similarities and Differences
We’ve seen the general overviews and pros and cons of both correspondent lenders and mortgage brokers, but how do the two compare? Well, a lot of people make the mistake of confusing mortgage brokers and correspondent lenders or assuming that the two are the same. In reality, even though they serve similar clients and sometimes work together, correspondents and brokers have totally different roles.
When it comes to a loan correspondent vs mortgage broker, the biggest difference is in terms of how they operate and the main services they offer. A correspondent lender will take care of all of the various functions connected to your mortgage’s origination, such as underwriting and funding. Mortgage brokers, meanwhile, only help to collect documents from their clients and find the right loans; they don’t do any underwriting or funding themselves.
The Transformation of Lending Services
While clients can choose either a correspondent lender or a mortgage broker based on their needs, we should note that lending services are changing. Lending is becoming a popular revenue generator for many businesses. Taking control over loan origination, risk assessment and loan management can help ventures open new revenue streams, empower their customers, and take a competitive advantage over their competitors.
How? It’s straightforward! With a partner like Tarya Fintech, even non-financial organizations can leverage their financial knowledge and transform the lending landscape of the future. Your business is your castle, too!