A New Choice for Home Financing: Correspondent Lenders
When you begin your search for a new home loan, one of the
first things to consider is where you'll get the money. Your
basic choices will be mortgage brokers and banks.
Your first instinct may be to go with your local bank, who you
know from doing business with them for other things, such as your
checking and saving accounts. But you've probably also heard that
mortgage brokers can get you a better interest rate, since they
deal with hundreds of lending sources. It can be confusing, but
there's a third source of funding that combines the best of
both--the correspondent lender.
In order to understand the differences, let's look at how the
lending process works in each case. Mortgage bankers are given
rate sheets by their institutions, telling them what interest
rates they can quote to their clients on any given day. There's
only so much a bank can do, with regard to interest rates,
because it needs to remain profitable in order to stay in
Mortgage brokers have an advantage in that regard. They're not
loaning their own money, and are free to "shop your loan around,"
looking for the best terms from various lending sources. They
make their money by getting loans at discount prices and then
marking them up, making money on the difference. Since they have
many sources to choose from, they can often find loans at lower
rates than most banks.
The third alternative, correspondent lenders, combines the
best features from both groups. Correspondent lenders are similar
to mortgage bankers in that they make the lending decision and
fund the loan with their own money or credit line. However, as
soon as a loan has closed, it's sold to another lender at a
previously negotiated price. It's the best of both worlds for you
as a borrower. You'll be dealing with the banker who is funding
your loan, yet that banker is able to shop your mortgage around,
which can obtain you a lower interest rate.
Correspondent lenders can sometimes be difficult to find,
since they're generally smaller institutions, operating on a
regional basis, and it can be hard to tell whether a lender is a
broker or a banker, based solely on the company's name. One way
to find out is by visiting the lender's website, if they have
one. You'll normally find a button you can click that will bring
up a page containing a detailed description of the company. If
the lender doesn't have a website, you may find their phone
number in the Yellow Pages.
Although they may not always be easy to locate, with a little
digging, you may find that a correspondent lender offers an
attractive alternative to a banker or mortgage broker when it
comes to shopping for your next home loan.
Copyright © 2005 Jeanette J. Fisher All rights
Jeanette Fisher is the author of "Credit Help! Get the Credit
You Need to Buy Real Estate," and other books. Real estate
financing questions? Visit the new Real Estate Credit Help Center
for articles, Credit Tips ezine, and blog: http://www.recredithelp.com
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