Choosing a Lender, Broker, or Correspondent Lender

Maybe you've heard of mortgage lenders and mortgage brokers, but you're not sure what the difference is, or why you'd choose one over the other. Let's explore the differences between lenders and brokers, and also explore a third option -- the correspondent lender.

Lenders are banks, mortgage banks, or other financial institutions. These institutions lend their own money. They employ loan officers or other representatives to work with customers and underwriters to process the final loan approval. Underwriting may take place right in the lender's local branch, or at a central location.

Brokers don't lend money. They shop your loan around to lenders until they find one to fund your loan. They may do some of the paperwork involved with funding the loan, but the ultimate underwriting approval is done by the lender.

Correspondent lenders are almost like a hybrid between lenders and brokers. They can fund your mortgage themselves, or they can get your mortgage funded by a traditional lender. However, even when they send your mortgage out of house for funding, they can complete the underwriting process in-house, giving them more control and quicker turnaround than a broker.

Lenders get a salary and commissions from the bank they work for. Correspondent lenders make money by charging fees, and brokers may charge fees or take a "cut" of your loan's interest from the lender. This cut is called the yield spread premium, or YSP.

The best person is the one who offers the most competitive rate, lowest fees, fastest turnaround on paperwork and approval, and lowest likelihood of botching your deal. Beyond that:

Brokers offer the flexibility of being able to shop multiple lenders at once. But once they send the paperwork to the lender for underwriting approval, they have no control over the process.

Lenders may offer quicker turnarounds since they conduct underwriting themselves. This is not always true for loan officers at national banks -- they often send their underwriting out of town to a central office.

Correspondent lenders are an excellent option, as they combine the flexibility of brokers and the processing speed and control of a lender.