If you are looking for a mortgage, you have two main options when it comes to getting advice. One is a loan officer, the other a mortgage broker.
In some ways, the roles of both are similar. Both a loan officer and a mortgage broker will ask you questions about your financial situation and help you fill out a mortgage application. But in other ways, their roles are very different.
A loan officer works for a bank, credit union, or another mortgage lender, and offers programs and mortgage rates from just this institution. A mortgage broker, in contrast, works on a borrower’s behalf to find the lowest available mortgage rates and the best loan programs available through multiple lenders.
- Loan officers and mortgage brokers both inquire about your financial situation and help you complete a mortgage application. However, their roles differ in other ways.
- Loan officers work for mortgage lenders such as banks or other financial institutions.
- Mortgage brokers match borrowers with lenders and try to find the best fit for the borrower’s needs.
- Be aware of the fees and commissions associated with either professional.
What Is a Loan Officer?
A loan officer works for a mortgage lender—a bank, credit union, or other financial institution—and their job is to help borrowers with the mortgage application process. Loan officers are often called mortgage loan officers, since that is the most complex and costly type of loan most consumers encounter. Loan officers must have a comprehensive knowledge of lending products, banking industry rules and regulations, and the required documentation for obtaining a loan.
Loan officers are knowledgeable about all of the various types of loans offered by the financial institutions they represent and can advise borrowers on the best options for their needs. Once a borrower and a loan officer agree to proceed, the loan officer helps prepare the application.
The loan officer then passes the application along to the institution’s underwriter, who assesses the creditworthiness of the potential borrower. If the loan is approved, the loan officer is responsible for preparing the appropriate documentation and the loan closing documents.
Some loan officers are compensated through commissions. This commission is a prepaid charge and is often negotiable. Commission fees are usually highest for mortgage loans.
Loan officers normally work for just one financial institution and can only offer loans from their employer. They might be able to reduce your rates and fees, but your options are limited to one company.
What Is a Mortgage Broker?
A mortgage broker also gathers paperwork from the borrower and passes that paperwork along to a mortgage lender for underwriting and approval purposes. However, mortgage brokers work with a wide variety of financial institutions and can offer you a range of mortgage loans from different banks, credit unions, and other mortgage lenders.
A mortgage broker works like a matchmaker. They help borrowers connect with lenders and seek out the best fit in terms of the borrower’s financial situation and interest-rate needs. A mortgage broker can save a borrower time and effort during the application process, and potentially a lot of money over the life of the loan.
Some lenders work exclusively with mortgage brokers, providing borrowers access to loans that would otherwise not be available to them. In addition, brokers can get lenders to waive application, appraisal, origination, and other fees.
However, the number of lenders a broker can practically access is limited by their approval to work with each lender. That means that borrowers are generally best served by doing some of their own legwork as well in order to find the best deal. Keep in mind, also, that big banks work exclusively through their own loan officers, and do not waive fees.
Mortgage brokers earn a commission from either the borrower, the lender, or both, at closing. These commissions, known as origination fees, are based on the size of the loan.
A mortgage broker can save you time and effort during the application process, and potentially a lot of money over the life of your mortgage. However, you should still shop around yourself for the best deal.
In principle, working with a mortgage broker can save you a lot of time and money. Loan officers can only help you to apply for the types of loans their employer chooses to offer. Mortgage brokers, who can work within a mortgage brokerage firm or independently, deal with many lenders to find loans for their clients. Because of this, brokers can give you access to a wide selection of loan types.
This can save you a lot of time. It can take hours to apply for pre-approval with different lenders, and then you must handle communication with the lender and underwriters to ensure that the transaction stays on track. A mortgage broker can save you the hassle of managing that process.
However, stay alert for extra fees and charges. Because a mortgage broker isn’t paid a salary by a particular financial institution, they will charge you a commission and fees. When choosing any lender—whether through a broker or directly—you can see these fees on the second page of your Loan Estimate form in the Loan Costs section under “A: Origination Charges.”
In addition, there can be some advantages to applying for a mortgage directly through a loan officer. Because they are employed by a mortgage lender, you may get a break on rates and closing costs, you may get an exception for unique income and financial situations, and you might have access to more down payment assistance (DPA) programs. If you take this route, your approval will also be handled “in-house,” meaning the lender can approve your loan and provide money to you directly.
Is a Loan Officer a Mortgage Broker?
No. Very often, homebuyers do not understand the difference between a mortgage broker and a loan officer. A loan officer works directly for a lender while a broker is an independent party that does not work for anyone but themselves and their clients.
Is It Riskier Using a Mortgage Broker vs. a Loan Officer?
No. Both mortgage brokers and loan officers are considered mortgage loan originators (MLOs), and have to meet strict federal requirements to be paid for helping negotiate mortgage loans.
Why Use a Mortgage Broker Over a Bank?
Because mortgage brokers work with many lenders, including major banks, small lenders, insurance and trust companies, and private funds, they often have access to mortgages with better rates.
The Bottom Line
In some ways, a loan officer and mortgage broker perform similar roles. Both will advise you as to what kind of mortgage loan is best for you, and both will help you apply for a mortgage.
There are important differences, however. A loan officer works for a particular mortgage lender, and can only offer loans from this company. A mortgage broker, in contrast, has access to a wide range of loan options.
Whichever professional you choose to work with, make sure you pay careful attention to the fees and commissions associated with your mortgage, and shop around for the best deal. You will be paying your mortgage for a long time, and it makes sense to get it right.