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When you need to get a mortgage, there are so many options that it might feel overwhelming. Your choice can have a big impact on how much time you spend shopping for a mortgage and how much you end up paying. By learning about the basic differences among three types of mortgage professionals—mortgage brokers, loan officers and mortgage bankers—you can figure out who can save you the most time and money.
When it comes time to get a mortgage, you have two main options for help: a loan officer or a mortgage broker. Both can assist you through the mortgage process, but there are some key differences between the two that you need to understand before making your choice. As someone who just went through this decision myself, I want to share what I learned to help others make an informed decision.
What is a Loan Officer?
A loan officer works directly for a bank or mortgage lender. They are employees of that specific financial institution. Loan officers specialize in the mortgage products and loan options offered by their company
The main role of a loan officer is to guide borrowers through the mortgage application process They will collect your financial information, recommend loans and terms based on the options from their institution, and help you through underwriting and closing.
Loan officers typically work on either a salary or commission basis, or a combination of both. The commission gives them motivation to originate more loans, as they get paid more for each one they close.
The biggest advantage of using a loan officer is that they are very familiar with their company’s mortgage products. If you like the loans offered by a certain bank or lender, working with their loan officer directly can streamline the process.
The downside is that you are limited to that institution’s mortgage offerings. If you want to shop around and compare rates/terms, you’ll need to apply with multiple lenders separately.
What is a Mortgage Broker?
A mortgage broker is an independent professional who is not employed by any one lender. They work with multiple banks, credit unions, and lenders to find mortgage products for their clients.
The mortgage broker serves as an intermediary between you and the actual lender. Their job is to identify your needs, shop for the best loans, and connect you with the right lending institution. Many lenders work exclusively through mortgage brokers.
One big advantage of using a broker is that you get to essentially “comparison shop” through one channel. The mortgage broker will pull your credit, assess your situation, and match you with loan options from multiple companies. This saves you time instead of applying separately to each lender.
Mortgage brokers are paid through origination fees that are charged to the borrower, lender, or both. This fee is usually 1-2% of the total loan amount.
Key Differences Between Loan Officers and Mortgage Brokers
While both loan officers and mortgage brokers aim to help you through the home lending process, there are some fundamental differences between the two:
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Employer: Loan officers work directly for a bank/lender. Mortgage brokers are self-employed or work for a brokerage firm.
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Loan Options: Loan officers can only offer their employer’s mortgage products. Brokers have access to loans from multiple lenders.
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Fees: Loan officers are paid salary and/or commission by their employer. Mortgage brokers collect origination fees paid by borrower, lender, or both.
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Mortgage Rates: Loan officers may be able to offer special pricing due to your relationship with their institution. Brokers can shop for the lowest rate across multiple banks.
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Speed: Getting a mortgage directly through a lender can sometimes be faster. The broker process involves more parties.
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Loan Officer: Works for one lender, limited options but potential relationship discounts.
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Mortgage Broker: Works with many lenders, more loan choices but added fees.
How to Decide: Loan Officer vs Mortgage Broker
So which option is better for you when getting a mortgage? Here are some things to consider:
Do You Have an Existing Banking Relationship?
If you already do business with a certain bank or credit union, check if they offer mortgage lending. Developing a relationship over time through checking/savings accounts, auto loans, credit cards, etc can pay off when it comes time to get a mortgage. Loan officers can offer relationship discounts and already have access to your financial information.
However, still talk to a mortgage broker as well. They may be able to find an even better rate elsewhere.
How Much Do You Value Convenience?
Applying directly through a lender’s loan officer can sometimes be a smoother and faster process. The loan officer has direct communication with their underwriters and mortgage operations team. This removes a middleman from the process.
How Widely Do You Want to Shop For Rates/Terms?
If you want to cast a wide net and compare mortgage offers from many different banks and lenders, a broker is likely the better choice. They have wholesale access to a variety of loan products. Make sure to still apply directly with 1-2 lenders though for comparison.
Are You Comfortable Paying Broker Fees?
The mortgage broker’s advantage comes at a cost – their origination fee. This will add 1-2% to your total closing costs. If you want to avoid paying this, stick with direct lenders. But you may sacrifice getting the absolute lowest rate.
How Much Hand-Holding Do You Need?
For first-time home buyers who want someone to guide them through the entire process, a broker may be beneficial. Their independent role means they can devote more time to educating you and answering your questions. Loan officers split time between existing customers and new business.
Making the Choice That’s Right For You
As you can see, there are valid reasons to choose either a mortgage broker or loan officer when applying for home loan. It mainly comes down to your specific needs and preferences as a borrower.
If convenience, speed, and relationships are important go with a loan officer. If you want the lowest rates and more hand-holding, choose a broker.
I’d recommend starting by getting rate quotes from 2-3 brokers and 2-3 direct lenders. Compare all the options to find both the best deal and the loan provider you feel most comfortable with.
The most important thing is doing your research upfront before submitting a full application anywhere. Evaluate the pros and cons of brokers vs. loan officers. Understand the mortgage process. And remember – you have the power here as the borrower. Find the loan choice that best fits your needs.
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How Do I Decide Which Is Best for Me?
The best way to choose between a mortgage broker, loan officer and mortgage banker is to talk to all of them. Many people are intimidated by the unfamiliar mortgage process that they don’t shop around. That’s a huge mistake that can cost you thousands of dollars, if not tens of thousands of dollars.
You can and should seek quotes from more than one broker, more than one banker and several loan officers. Set aside one day, or two consecutive days, to gather all your quotes. Market conditions change frequently, as does your credit report. You won’t be able to make accurate comparisons if you get quotes days or weeks apart.
By collecting several loan estimates (ideally, at least three to five) for the same mortgage product and loan term, you can directly compare interest rates and fees and see which option will be the most affordable.
That said, if you don’t have a salaried job, a credit score in the 700s and a low debt-to-income ratio, you might save time by skipping the loan officers.
If you are self-employed, retired, using assets rather than income to qualify or in some other outside-the-box category of applicant, you might be better served by a mortgage broker or mortgage banker. They usually have the experience and relationships to quickly match you with the right source of funding and have more options to choose from than loan officers.
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Mortgage brokers will shop around for mortgages on your behalf. They can save you time and money by looking for the best available deals for someone with your financial profile—assuming they’re honest, good at their job and have relationships with lots of different mortgage lenders. Somewhat confusingly, individuals and companies that fill this role are both called mortgage brokers.
A mortgage broker doesn’t lend you money, and they also don’t approve your loan application. However, they will collect information about your income, financial obligations and credit score to see what types of loans you might qualify for and which lenders will offer a loan.
If your finances aren’t strong enough to borrow as much as you want, a broker should be able to tell you what you need to improve on, such as paying down debt to lower your debt-to-income (DTI) ratio or accumulating a longer history of making payments on time to boost your credit score.
If a mortgage broker finds a loan that you want to proceed with, they will be the intermediary between you and the lender. They’ll take your full application, collect your supporting documents and relay any requests for additional information from the lender’s mortgage underwriting department.
Loan officers work for companies such as banks, credit unions or online direct lenders that lend borrowers money to buy and refinance homes. They may be able to offer you several types of loans (Federal Housing Administration (FHA), FHA 203(k), conventional and jumbo) if the financial institution they work for offers them. They may also be able to offer you different combinations of interest rates, points and origination fees on particular loan products.
However, unlike brokers, all of these loans will come only from the loan officer’s company, so your selection will be smaller. To get offers from multiple lenders, you’ll have to work with multiple loan officers at different companies.
If you decide to move forward, a loan officer will take your loan application and submit it to their company’s underwriting department. They’ll be the intermediary between you and the underwriter, and they’ll help you get to closing.
Throughout these steps, a loan officer serves the same function as a mortgage broker. The big difference between working with a mortgage broker vs. a loan officer comes at the beginning, during the shopping phase, where you’re trying to find the best deal on a mortgage.
Mortgage bankers take your loan application, underwrite it, approve it and see you through the closing process. They will either lend you the money directly or get the money from a bank. They can also find you the best deal available from the various banks they have relationships with. As with brokers, a mortgage banker can refer to an individual or a company.
A mortgage banker can originate all types of loans, so you’ll have plenty of options in terms of loan products, just like you would with a mortgage broker or some loan officers. What’s more, they work with all kinds of applicants, including those who need an FHA loan due to its more relaxed qualifications or military service members who want a VA loan.
Mortgage bankers typically have at least 10 years of experience, though this isn’t a firm requirement and licensing regulations vary by state. This level of experience may be helpful if your financial profile doesn’t align with the qualifications for a conventional loan that follows Fannie Mae and Freddie Mac’s lending requirements.
Loan Officer vs Mortgage Broker
FAQ
What is the difference between a broker and a loan officer?
Is it better to use a broker or lender?
What is the difference between a loan officer and a loan originator?
What is another name for a loan officer?
What is the difference between a mortgage broker and loan officer?
A mortgage broker works independently with multiple lenders to find the best loan options for clients, while a loan officer is employed by a specific financial institution and offers loans only from that institution. Mortgage Loan Officer vs. Mortgage Loan Originator: Which is Which?
Do you need a mortgage broker or a loan officer?
Getting a home loan is a big financial decision. You need to work with someone who can get the lowest rate and best terms on your mortgage. When looking for a mortgage, you’ll need to choose between a mortgage broker and a loan officer. Each one can help you get a loan, but there are key differences between them.
What is the difference between a loan officer and a lender?
Loan officers are sometimes called mortgage consultants, mortgage loan originators, home loan consultants, and mortgage planners. They help borrowers apply for a mortgage and guide them through the loan process. Lenders, on the other hand, are the ones who front the money to fund your loan.
How do I become a loan officer or mortgage broker?
The requirements to become a loan officer or mortgage broker vary by state. It’s usually necessary to earn a high school diploma and complete mortgage courses that have approval from the Nationwide Multistate Licensing System (NMLS). An example of a required certification is the Mortgage Loan Originator (MLO).