August 30, 2011 – There are a few ways to secure mortgage financing to buy a home. The most common method is making an application through one of three entities: a mortgage lender, a mortgage broker or a correspondent lender.
To the borrower, the differences in these three may seem nonexistent because their outcome is the same. Once the loan funds, however, the differences become clear.
Correspondent lenders operate much like mortgage lenders who originate and fund loans in their name. The difference is that once a loan settles or closes, a correspondent lender does not accept monthly payments or service the loan. Instead, they sell the loan to another mortgage lender or to a secondary marketing agency, such as Fannie Mae or Freddie Mac. This helps them avoid the market risk lenders have by holding onto the loan, and guarantees they’ll make their money without carrying the risk of loan default.
Working with a correspondent lender provides another option to borrowers when searching for the right home financing. Some experts believe that correspondent lenders combine the best advantages offered by both mortgage lenders and brokers because they use all available aspects of mortgage negotiating and funding.
Before you finance your next home, be sure to research all three entities so you can decide which one will work best for you.