Yes and no.
This drives me crazy. Every year I get calls from borrowers who got screwed over by some lender who promised them the world and delivered garbage. Higher rates than they qualified for. Fees that came out of nowhere. Loan officers who disappeared when problems showed up.
The thing is, most borrowers don’t even know there are three completely different types of mortgage lenders out there. They think a lender is a lender.
Wrong.
Each type operates totally differently, and understanding these differences can save you thousands of dollars and a ton of headaches.
After twenty years in this business, I’ve seen how each type works from the inside. I spent over ten years as a retail loan officer before recently moving to work with the #1 purchase loan and #1 VA loan mortgage broker. Why did I make the switch? Better rates, more pricing transparency, and much more flexibility in how I can serve my clients.
Some will fight for you. Others will try to squeeze every penny out of you. The key is knowing which is which before you sign anything.
Let me break down the three main types of mortgage lenders and how to avoid getting ripped off by any of them.
The Three Types You Need to Know About
There are basically three ways your mortgage gets originated and funded:
- Wholesale brokers work with multiple lenders and shop your loan around
- Retail lenders handle everything in-house using their own money and underwriters
- Correspondent lenders originate your loan, then immediately sell it to bigger institutions
Each model has completely different incentives. That affects everything from the rates you get offered to how fast your loan closes to whether anyone will actually fight for you when problems come up.
Most people have no idea which type they’re working with. That’s a problem because the approach that works with one type can backfire spectacularly with another.
Wholesale Brokers: The Shopping Advantage
Wholesale brokers are basically the middlemen of the mortgage world. They don’t lend their own money. Instead, they work with dozens (or sometimes hundreds) of wholesale lenders who compete for your business.
Think of them like mortgage shopping services. They take your application and shop it around to find the best rates and terms from their network of lenders. You never actually deal with the wholesale lender directly. Everything goes through the broker.
The good news is this competition can work in your favor. I’ve seen brokers get rates that beat anything you’d find going directly to a bank. They also have access to specialty programs that retail lenders don’t offer.
The bad news is you’re adding another layer to the process. Every layer means more potential for things to go wrong.
But here’s something most people don’t know: broker compensation is actually more transparent than retail or correspondent lenders. Brokers get paid a set fee regardless of which lender they choose, so they have no financial incentive to steer you toward one lender over another. They can truly shop for the best deal.
What’s changed dramatically in recent years is that several wholesale mortgage lenders have emerged specifically to provide best-in-class service. These lenders are dedicated to giving mortgage brokers and their clients an experience that actually exceeds what you’d get from retail or correspondent lenders. They’ve invested heavily in technology, faster processing, and better communication because they know brokers have choices.
The key with brokers is asking the right questions upfront: How many lenders do they work with? What’s their track record for getting tough loans approved? Will they show you multiple options? Unlike retail and correspondent lenders who don’t have to disclose their compensation, brokers must clearly show you exactly what they’re getting paid.
I’ve worked with some fantastic brokers over the years, and after spending over a decade in retail lending, I can tell you the best brokers and wholesale lenders now deliver an experience that beats most retail operations. The good ones will fight hard to get you approved and find creative solutions when standard programs don’t work. Having worked both sides, I can honestly say the transparency and flexibility of the broker model is why I made the switch myself.
The biggest advantage of working with a wholesale broker is variety and increasingly, superior service. If you have complicated finances or credit issues, they often have access to lenders who specialize in tough cases. The top wholesale lenders have also invested heavily in technology and streamlined processes specifically to compete on service quality, not just rates.
The biggest disadvantage is you’re trusting the broker to represent your interests accurately to lenders you never meet. But with the right broker who works with premium wholesale lenders, this relationship often delivers better results than going direct.
Retail Lenders: The Direct Approach
Retail lenders are what most people think of when they hear “mortgage lender.” These are banks, credit unions, and mortgage companies that lend their own money directly to borrowers.
When you go to your local bank or credit union for a mortgage, that’s retail lending. They use their own funds to make the loan. Their own underwriters review your application. Their own loan officers handle your file from start to finish.
The main advantage is straightforward communication. You’re dealing directly with the decision makers. If there’s a problem, you can usually get it resolved faster because you’re not going through a middleman.
Retail lenders also tend to be more stable. They’re not dependent on maintaining relationships with wholesale partners. If market conditions change, they can often adjust faster than brokers who might lose access to certain lenders.
The downside is limited options. Each retail lender only offers their own products. If their programs don’t fit your situation perfectly, you might be out of luck. They also tend to have stricter guidelines since they’re keeping the risk on their books initially.
Credit Unions Are Worth Considering
Credit unions are technically retail lenders, but they operate very differently from banks. Since they’re nonprofit, they can often offer better rates and more flexible underwriting. The trade-off is usually limited technology and fewer locations.
I’ve seen credit unions approve loans that big banks wouldn’t touch. They tend to look at the whole picture instead of just credit scores and debt ratios. If you qualify for credit union membership, it’s often worth checking their rates.
Big banks offer convenience and name recognition, but they’re not always the best deal. They have higher overhead costs that get passed on to borrowers. They also tend to have rigid underwriting that doesn’t account for unique situations.
The key with retail lenders is shopping around. Just because one bank says no doesn’t mean they all will. Different lenders have different risk appetites and specialty programs. But having worked in retail for over ten years, I can tell you that your options are limited to whatever that specific lender offers. If their programs don’t fit your situation perfectly, you’re often out of luck.
Correspondent Lenders: The Hybrid Model
Correspondent lenders are probably the type most borrowers have never heard of. They operate like retail lenders on the front end but like wholesale operations on the back end.
Here’s how it works: The correspondent lender originates your loan using their own funds and underwriters. You deal with them directly, just like with any retail lender. But immediately after closing, they sell your completed loan to a larger institution.
This model gives correspondent lenders more flexibility than pure retail while maintaining more control than brokers. They can offer competitive rates because they have multiple exit strategies for selling loans.
The advantage for borrowers is you get the benefits of direct lending with access to more diverse funding sources. Correspondent lenders can often match or beat broker rates while providing better service than wholesale operations.
The disadvantage is your loan will definitely get sold after closing. Some people don’t like the uncertainty of not knowing who will service their loan long-term. There’s also a chance the correspondent lender could go out of business before selling your loan (though this is rare).
Correspondent lending is actually a huge part of the mortgage market. Many lenders you think are retail are actually correspondent operations. They just don’t advertise it that way.
I’ve worked with several correspondent lenders over the years. The good ones combine the best aspects of retail and wholesale. They can move fast when needed but also provide personal service throughout the process.
The key is understanding that your loan will get sold and making sure you’re comfortable with that. Ask about their typical buyers and what the transfer process looks like.
How Each Type Affects Your Experience
The type of lender you choose impacts everything about your mortgage experience. Let me walk through the key differences.
Speed
Speed varies between lender types. Retail lenders are often slowest because they handle everything internally. If their underwriting department gets backed up, your loan sits in queue. Wholesale brokers can sometimes move faster by shopping your loan to lenders with more capacity. Correspondent lenders fall somewhere in between.
But speed isn’t everything. A fast closing doesn’t help if the rate is terrible or the loan falls apart at the last minute.
Rates and Fees
Rates and fees are where things get interesting. Wholesale brokers often have access to the best rates because lenders compete for their business. Since broker compensation is set regardless of which lender they choose, they can truly shop for your best deal. Retail and correspondent lenders don’t have to disclose what they’re making on your loan, so their “low rates” might hide higher profits.
The key is looking at total cost, not just the interest rate. A slightly higher rate with no fees might beat a lower rate with big upfront costs.
Service Quality
Service quality varies more by individual company than by lender type. I’ve seen great and terrible examples of all three types. But there are some general patterns.
Retail lenders often provide more consistent service since you’re dealing with one company throughout. Wholesale brokers are only as good as their weakest link in the chain. Correspondent lenders usually fall somewhere in between.
The biggest service difference is what happens when problems arise. With retail lenders, you can usually get issues resolved internally. With brokers, you’re dependent on the broker’s relationship with the wholesale lender. With correspondent lenders, it depends on timing and whether your loan has been sold yet.
Problem-Solving Ability
Problem-solving ability is important for complicated loans. Wholesale brokers often win here because they can shop your scenario to multiple lenders. If one says no, they can try another. Retail lenders have limited options if their standard programs don’t fit. Correspondent lenders are similar to retail in this regard.
Red Flags to Watch for with Any Lender Type
Regardless of which type of lender you choose, there are warning signs that should make you run the other way.
Pressure tactics are a huge red flag. No legitimate lender should pressure you to sign immediately without time to review documents. Anyone who says the rate is only good today or won’t let you take loan estimates home is probably trying to hide something.
Vague fee explanations are another warning sign. Every fee should be clearly explained before you commit. If the loan officer can’t tell you exactly what you’re paying for, that’s a problem.
Promises that sound too good to be true usually are. If one lender is offering rates significantly better than everyone else, there’s probably a catch. Maybe they’re planning to hit you with huge fees at closing. Maybe they’re not actually approved for the programs they’re advertising.
Poor communication early in the process usually gets worse, not better. If your loan officer doesn’t return calls or emails promptly during the sales phase, imagine what service will be like after closing.
Missing license information is a deal-breaker. Every mortgage professional should be able to provide their NMLS license number immediately. If they can’t or won’t, that tells you everything you need to know.
Upfront fees before approval are usually scams. Legitimate lenders don’t charge application fees or processing fees until you’ve been approved and are moving toward closing.
How to Choose the Right Type for Your Situation
Your choice of lender type should depend on your specific circumstances and priorities.
- If you have perfect credit and straightforward finances, retail lenders might be your best bet. You’ll get direct service and competitive rates without the complexity of multiple parties.
- If you have credit issues or complicated income, wholesale brokers often provide the most options. They can shop your scenario to lenders who specialize in tough cases.
- If you want the benefits of both retail service and wholesale options, correspondent lenders might be the sweet spot.
- First-time buyers often benefit from retail lenders or correspondent lenders who can provide more education and hand-holding. The broker model can be overwhelming for people who don’t understand the process.
- Veterans should work with lenders who specialize in VA loans, regardless of type. VA loans have unique requirements that generic lenders often mess up.
- Investment property buyers might prefer wholesale brokers who have access to specialty programs. Many retail lenders don’t offer investor loans or have very restrictive terms.
- Time-sensitive buyers might prefer brokers who can move fast or correspondent lenders with streamlined processes. Retail lenders often take longer, especially during busy periods.
- Rate shoppers should definitely consider wholesale brokers but need to factor in all fees, not just the base rate.
The Questions You Must Ask Every Lender
Regardless of which type of lender you’re considering, there are questions you need to ask upfront:
- What type of lender are you, exactly? Don’t assume. Ask directly whether they’re retail, wholesale, or correspondent, and make sure you understand what that means for your loan.
- What are all the fees, and who gets paid what? Get a complete breakdown in writing. Brokers are required to disclose their exact compensation, which gives you more transparency than retail or correspondent lenders who can hide their profits in rates and fees.
- How many loans like mine have you done in the past year? You want someone with relevant experience, not someone learning on your dime.
- What happens if problems come up during underwriting? How much control do you have over the process, and what’s your track record for solving issues?
- Will my loan be sold after closing, and if so, to whom? Even retail lenders often sell loans, so don’t assume your loan will stay put.
- What’s your average time to close, and what could cause delays? Set realistic expectations upfront.
- Can you provide references from recent borrowers? Any lender worth working with should be able to provide satisfied customer references.
- What happens if rates change between now and closing? Understand rate lock policies and what your options are if rates move significantly.
Frequently Asked Questions
Which type of lender typically offers the best rates?
Wholesale brokers often have access to the most competitive rates due to lender competition, but you need to factor in all fees. The best deal depends on your specific situation and total cost of borrowing.
Is my loan more likely to get sold with certain lender types?
Correspondent lenders always sell loans immediately after closing. Most retail lenders also sell loans eventually. Only some credit unions and portfolio lenders keep loans long-term.
Which type is fastest for closing?
It varies by individual lender, but wholesale brokers can sometimes move fastest by shopping to lenders with available capacity. Retail lenders may be slower during busy periods.
Do I need better credit for certain lender types?
Wholesale brokers often have access to the most flexible programs for borrowers with credit challenges. Retail lenders may have stricter standards but more consistent guidelines.
Which type offers the best customer service?
Service quality varies more by individual company than lender type. However, retail and correspondent lenders typically provide more direct communication since you're not going through a middleman.
Can I negotiate with different lender types?
Yes, but your leverage varies. With brokers, you can ask them to shop for better terms. With retail lenders, you might negotiate fees or ask for rate matching. Correspondent lenders often have flexibility similar to retail.
The Bottom Line on Mortgage Lender Types
The type of lender you choose matters more than most people realize. Each model has different strengths and weaknesses that can significantly impact your experience and your wallet.
Wholesale brokers offer variety and potentially better rates but add complexity and potential conflicts of interest. Retail lenders provide direct relationships and simpler processes but limited options. Correspondent lenders try to offer the best of both worlds, but your loan will definitely be sold.
The key is understanding which model fits your situation and priorities. Then do your homework on the specific company, regardless of type. A great retail lender beats a mediocre broker every time.
Don’t just go with the first lender who pre-approves you. Shop around and ask the hard questions. Compare total costs, not just interest rates. And trust your gut if something feels off.
Your mortgage will probably be the biggest financial commitment of your life. Take the time to understand who you’re working with and how they operate. It could save you thousands of dollars and a lot of stress.
Ready to explore your mortgage options with someone who has worked both retail and broker sides of the business? After over ten years in retail lending, I chose to work with the #1 purchase loan and #1 VA loan mortgage broker because it lets me offer better rates, complete pricing transparency, and more flexibility to serve my veteran clients. Contact me for a no-obligation consultation where I’ll explain exactly how this model works and why it might be the right fit for your situation.
About The Author - Jason Skinrood
