If you are looking for a mortgage, you have two options when it comes to getting a professional to help you through the process: a loan officer or a mortgage broker.
The roles are similar. A loan officer and a mortgage broker both will ask questions about your financial situation and help you fill out a mortgage application and get it processed. But in other ways, their roles are very different.
A loan officer works for a bank, credit union, or another mortgage lender, and will offer only the programs and mortgage rates that are available from that institution. A mortgage broker works on a borrower’s behalf to find the best rate and loan from a number of institutions.
The loan officer may receive a commission for successfully processing your application. The mortgage broker will charge you, the bank, or both a commission and fees.
- Loan officers work for mortgage lenders like banks or other financial institutions.
- Mortgage brokers are independent and can recommend the best fit for the borrower’s needs from a number of institutions.
- A mortgage loan officer receives a commission for obtaining your application.
- A mortgage broker may charge you, the bank, or both for obtaining the application.
- In either case, the costs will be listed in the loan documents as “loan origination fees.”
What Is a Loan Officer?
Loan officers work for mortgage lenders. Their job is to explain the options available from the lender and help the borrower with the mortgage application process.
Loan officers must have a comprehensive knowledge of lending products, banking industry rules and regulations, and the required documentation for obtaining a loan. They are often called mortgage loan officers since that is the most complex and costly type of loan most consumers encounter.
Loan officers are knowledgeable about the various types of loans offered by the financial institutions they represent and can advise borrowers on the best options for their needs based on their financial circumstances. 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 higher for mortgage loans than for other types of loans.
It’s important to know that the big banks work exclusively through their own loan officers. A mortgage broker will not be able to offer their products.
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 that company’s offerings.
What Is a Mortgage Broker?
Mortgage brokers work with a wide variety of financial institutions and can offer a range of options from banks, credit unions, and other mortgage lenders.
A mortgage broker is a matchmaker. They seek the best mortgage product for the borrower’s financial situation and then connect borrowers with lenders who offer them. The mortgage broker also gathers paperwork from the borrower and passes it along to a mortgage lender for underwriting and approval.
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. Moreover, 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 access is limited to the institutions that have approved their services. Borrowers are best served by doing some legwork on their own in order to find the best deal.
Mortgage brokers earn a commission from either the borrower, the lender, or both. These commissions, known as origination fees, generally are 1% to 2% of the loan amount. Mortgage brokers must be licensed to do their job, and they must disclose their fees up front.
A mortgage broker can save you a lot of money over the life of your mortgage. However, you should still do some research in advance so that you’re aware of the available options.
When you work with a loan officer, you’re dealing directly with the institution that will be lending you money. When you work with a mortgage broker, you’re working with a third party. The broker does not loan you money but facilitates the process between you and a lender.
Loan officers can only help you to apply for the loans their employers offer. Mortgage brokers deal with many lenders and may be able to find the best deal for your circumstances.
In either case, you will be paying a commission and some fees. You can ask what they will be.
Whether you’re using a broker or a loan officer, you can find out what fees and charges you’re paying on the second page of the Loan Estimate you receive when applying for the mortgage. It will be listed in the Loan Costs section under “A: Origination Charges.”
There are advantages to applying directly through a loan officer. Because they are employed by the lender, you may get a break on their rates and closing costs. You may get an exception based on your unique income and financial circumstances, and you will have access to any down payment assistance (DPA) programs that you’re eligible for.
If you take this route, your approval will be handled “in-house.”
Is a Loan Officer a Mortgage Broker?
No. A loan officer is employed by a bank or other financial institution and offers only that institution’s mortgage products. A mortgage broker works with a number of financial institutions and tries to find the best product for the applicant’s needs.
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 for helping negotiate mortgage loans.
Why Use a Mortgage Broker Over a Bank?
A bank’s loan officers can only recommend that bank’s products. Mortgage brokers work with many lenders and might be able to find a better deal for you.
Keep in mind that you will pay for the services of either professional, via the loan origination fee listed on your mortgage application.
The Bottom Line
Whether you choose to work with a loan officer or a mortgage broker, pay careful attention to the fees and commissions they will charge.
Before you meet with either, spend some time researching the best deals available at the time and the types of loans that are available. You will be paying your mortgage for a long time, and it makes sense to get it right.