Correspondent Lenders : Another Option of Home Financing
Buying a home is a major financial commitment. How you finance the home purchase can
mean a difference of thousands or tens of thousands of dollars over the life of
the home mortgage loan. Where you get the money to buy your loan is a very
important consideration.
The first place many home buyers look when financing a home purchase is their local
neighborhood bank. After all, you probably already know the people at your local bank
and have an ongoing relationship with them. What better place to go for the money you
need to buy your first home?
Before you go with a local bank, however, you may want to consider the alternative of
mortgage brokers. Mortgage brokers have access to mortgage loans from many different
sources, and as such they can often obtain lower interest rates than you could obtain
from your local bank.
In addition to these two sources of financing for a home purchase, there is a third
option. Correspondent lenders combine the best features of a local bank with the best
features of a mortgage broker to provide an excellent resource for the home buyer.
In order to understand the unique features of each type of home financing, it is
important to understand how each source works. With local bankers, the mortgage loan
officer works from a rate sheet provided by their headquarters. This rate sheet dictates
the interest rates they can quote to their loan applicants. A bank may be somewhat
limited in the interest rates they can offer because they need to build a profit margin
into all their loan vehicles.
Mortgage brokers help mitigate that issue because they are not lending the home buyer
their own money. Mortgage brokers are free to shop around at many different sources
to obtain the best interest rate and terms for the loans the provide. The mortgage
broker makes their profit by getting the loans at a discount and marking them up, thus
making a profit on the difference. Mortgage brokers typically have a wider universe
of loans to choose from, and can thus get lower rates than most banks.
The third option is known in the industry as correspondent lenders. Correspondent
lenders combine the best features of mortgage brokers and the best features of banks.
Correspondent lenders are similar to bankers in that they make the decision on whether
or not to loan the money and they fund the mortgage loan with their own money. Unlike
banks, however, the loan is sold to another lender immediately after it is closed. This
allows the home buyer to take advantage of the best of both worlds. He or she can get
the lower interest rates offered by mortgage brokers, coupled with the convenience
and local decision making of the local banking relationship.
Correspondent lenders tend to be smaller institutions which operate on a regional basis.
These small but powerful institutions are well worth the time and effort it takes to
find them. Don't overlook this important alternative when shopping for a home loan.
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