Over the past several years, mortgage brokers have played an increasing role as a source of real estate financing.  A mortgage broker differs from most traditional "direct" mortgage lenders because they can represent many sources of investment capital including banks, pension funds, insurance companies, and even individuals.  The mortgage broker is an "agent"  of  several investing institutions and usually receives a commission and/or a fee for originating and processing the mortgage loan.  The broker does not service the loan nor receive any of the monthly payments.       

Whether you choose a traditional mortgage lender for your mortgage loan or a mortgage broker, it is important to understand the difference between the two.

A Mortgage Broker...

• does not make credit decisions nor issue mortgage commitments

• can shop difficult, bad credit, or substandard applications with a variety of direct lenders and may be able to offer a wider variety of loan products  

• the borrower usually has no direct contact with the lending institution until the loan is scheduled for closing 

A Traditional (Direct) Mortgage Lender

• negotiates directly with the borrower, renders the credit decision, and actually issues the loan in it's own name

The primary distinction between the two is that a traditional mortgage lender usually originates and services their loans including those loans sold in the secondary market.  Mortgage brokers only serve as an intermediary by bringing together the borrower and investor.   One advantage of using a mortgage broker is that the  broker may be able to offer greater options and more credit flexibility than a direct lender.  A lack of direct business contact between the borrower and the actual lender, on the other hand, offers the potential for miscommunication during the application process and could result in last minute changes at closing.

Whether you should choose a direct lender or  a mortgage broker  is more a matter of choice or circumstance.  Although there are no set rules for determining which you should use, if you are unfamiliar with the broker you are considering, you should make sure that he or she is properly licensed.