Mortgage Loan Originator vs Broker: Key Differences You Should Know

Getting a mortgage is often the largest financial transaction someone makes in their lifetime. With so much on the line it’s crucial to work with a knowledgeable mortgage professional who can help you get the best loan for your needs. When starting your search you’ll encounter two main types of mortgage lending professionals – loan originators and brokers. While they may sound similar, there are some notable differences between the two.

Below we’ll explore what exactly loan originators and brokers are how they compare in terms of their role compensation, regulations, and more. Understanding these key distinctions can help you determine which type of mortgage professional is the best fit to help you achieve home financing success.

Mortgage Loan Originator Definition

A mortgage loan originator, often shortened to MLO or loan originator, is a lending professional who works directly for a bank, credit union, or other mortgage lender. Loan originators take your application information, help you select a mortgage product, process your loan, and guide you through closing. The term “originate” refers to their role starting the lending process that results in a new mortgage loan.

Mortgage loan originators are employees of the lender. They can only offer the mortgage products from their particular institution. The loan originator handles your entire loan process internally within their company.

Mortgage Broker Definition

A mortgage broker is an independent mortgage professional who acts as an intermediary between you and various lenders. Mortgage brokers are not employed by any one lender. Instead, brokers shop your loan application to different lenders to find competitive rates and terms.

Brokers tap into a broad network of wholesale lenders to get you loan offers. Then you choose the mortgage from the options the broker presents. The lending happens through the lender, while the broker serves as the facilitator making the lending connection.

Key Differences Between Loan Originators and Brokers

While loan originators and brokers both aim to help you get home financing, there are some notable ways these two mortgage pros differ:

Loan Options

• Loan originators can only offer loans from their employer lender.

• Brokers can access many loan options across an array of lenders.

Regulations

• Loan originators must be licensed and are regulated under federal and state laws.

• Brokers are also licensed and regulated, but states vary in broker licensing requirements.

Pay Structure

• Loan originators receive a salary and/or commissions from their employer.

• Brokers get paid commissions by lenders and sometimes borrowers.

Loan Process

• Loan originators manage the full in-house loan process through one lender.

• Brokers shop your loan to lenders but don’t make credit decisions or fund loans.

Closing Disclosures

• Loan costs appear as lender charges when working with a loan originator.

• Brokers must disclose their full compensation as a separate fee when provided by the lender.

Affiliation

• Loan originators work for and represent their employer lender.

• Brokers work independently without affiliation to any one lender.

Borrower Costs

• Using a loan originator doesn’t typically involve extra fees.

• Brokers may charge borrower fees for their services.

How Loan Originators Get Paid

Mortgage loan originators are employees of lending institutions. Their compensation comes directly from their employer through:

• Salaries – Some loan originators work on a salaried basis so they earn the same consistent income no matter how many loans they do.

• Commissions – Many loan originators earn commissions based on the dollar amounts of loans they originate. The more loans and larger loan amounts, the higher their commissions.

• Hybrid – Some loan originators receive a lower base salary plus commissions on top. This combines steady income with performance-based pay.

Since loan originators work directly for lenders, their salaries and commissions are covered by their employers. They should never charge borrowers any direct fees.

How Mortgage Brokers Get Paid

Mortgage brokers work independently, so they don’t receive salaries or commissions from lenders. Broker compensation comes from:

• Lender-paid commissions – The lender pays the broker a percentage of the loan amount in commission when the mortgage closes. This payment comes from the lender, not the borrower.

• Borrower-paid fees – Some brokers charge borrower fees for their services in origination, application, or processing. These out-of-pocket costs are disclosed upfront.

• Back-end – The broker receives a commission after closing when the borrower takes a higher rate with lender credits applied at closing.

• Hybrid – The broker gets paid partly from the lender and partly from borrower-paid fees.

Mortgage brokers must fully disclose their compensation. Borrowers will see broker charges as a separate fee on the Closing Disclosure.

Which Is Better – Loan Originator or Broker?

With an understanding of how these two mortgage professionals differ, you may be wondering which option is better when getting a home loan.

Here are some key points to consider:

• Loan selection – Brokers often have more loan programs to choose from through their lender network. Loan originators just have their own company’s offerings.

• Rate shopping – Brokers usually have the advantage for rate shopping, though some loan originators can match competitor pricing.

• Familiarity – If you have an existing banking relationship, the familiarity of using their loan officer may be more comfortable.

• Cost – Loan originators don’t charge broker fees, though brokers may negotiate lender credits to offset their charges.

• Efficiency – Brokers require one application for multiple lenders. Loan officers need separate applications to each lender to compare.

For most homebuyers, working with a broker simplifies the rate shopping process while still accessing wide loan selection. But loan originators can be a strong option too, especially if leveraging an existing banking relationship.

Either way, it’s wise to get multiple rate quotes before committing to improve your chances of scoring the very best deal. The right mortgage professional makes all the difference in guiding you to affordable home financing that fits your needs.