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A mortgage broker works with several lenders and attempts to select
the lowest rate for the borrower. The broker is compensated generally
by the actual lender after you close on the property. A direct lender
has a pool of funds from its depositors, stockholders, or bondholders, and
lends the funds directly to the borrower.
The pros of direct lenders are that the mortgage approval process
will have one less entity involved, and in theory less possibility for
problems. The cons of direct lenders are that they might have
less flexibility in approving your mortgage (such as no subjective allowance
in your financial ratios or require higher credit scores), and you could be
denied the mortgage. The pros of
mortgage
brokers are you might get a better interest rate, and large brokers may have
promotional offers such as lower closing costs. The cons of mortgage brokers
include the possibility of miscommunication between the broker and the lender as they
are dealing with many different lenders (such as losing a lock on an
interest rate because the true lender's policies had changed just before you locked, and the broker
was unaware).
Another consideration is local vs. national direct lenders or brokers. A non-local broker or direct lender may not be able to find an appraiser for
instance during the interest rate lock period, and you could lose your planned interest rate (and thus you may need to start the process over again and
provide current documentation).
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