If you're ready to purchase a home, applying for a mortgage is one of the first tasks that you'll need to complete to fulfill your dreams of home ownership. When you're researching prospective mortgages, a wholesale mortgage is one type of loan that you'll encounter. Keep reading for a few things you need to know about wholesale mortgages.
1. Multiple Parties Are Involved with a Wholesale Mortgage
With a wholesale mortgage, you have one company that has money that it wants to lend. However, this company doesn't make the loans itself. Instead, the company utilizes loan brokers to find borrowers who will meet the wholesale mortgage company's criteria.
Though the wholesale mortgage lender funds the loan, the loan broker is responsible for the logistics associated with the mortgage. The loan broker will take your mortgage application, gather your supporting documents, and prepare everything for the underwriting process. Should a problem arise, the broker is responsible for remedying the issue.
2. Fees for Brokers Who Sell Wholesale Mortgages Vary
Loan brokers are compensated via a system known as a yield spread premium. A yield spread premium compensates the broker for lending money to borrowers at a rate that exceeds the wholesale mortgage company's minimum interest rate. Generally, the higher the interest rate offered by the loan broker, the more money they'll make on the loan.
However, the actual fees that you'll pay the loan broker for their services vary dramatically. Some loan brokers will charge a higher yield spread premium, but they will absorb other costs (like recording fees or the costs associated with title insurance) to lower the cost of the loan for the borrower. Borrowers tend to balk at mortgages that are riddled with fees, and if a broker's fees are too high, this may make their loan an unattractive option.
It's important for borrowers to compare the total fees for a loan rather than focusing on one specific component. Even though one broker might charge a larger yield spread premium, they may be willing to reduce other costs that lower your overall fees for the loan. Make sure that you compare total fees from multiple loan brokers.
3. Your Loan Will Be Sold Soon After Closing
Once you close on your mortgage loan, it's likely that your loan will be bundled with other mortgages and sold as securities to investors. This won't change the terms of your loan, but it will alter which financial institution you send your payment to. Keep an eye on your mail or electronic statements for information about your loan being sold.