If you’re looking for a mortgage, you have two options when it comes to hiring a professional to help you through the process: a loan officer or a mortgage broker.
The roles are similar. A loan officer and mortgage broker will ask you questions about your financial situation and help you complete a mortgage application and get it processed. But in other respects, their roles are very different.
A loan officer works for a bank, credit union, or other mortgage lender and will only offer mortgage programs and rates available from that institution. A mortgage broker works on behalf of a borrower to find the best rate and loan from a number of institutions.
The loan officer may receive a commission for the successful processing of your application. The mortgage broker will charge you, the bank, or both a commission and a fee.
Key points to remember
- 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 charges 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 to the lender and help the borrower through the mortgage application process.
Loan officers should have a thorough knowledge of loan products, banking industry rules and regulations, and the documentation required to obtain a loan. They are often referred to as mortgage loan officers because they are the most complex and expensive type of loan that most consumers face.
Loan officers know the different 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 situation. Once a borrower and loan officer agree to proceed, the loan officer helps prepare the application.
The loan officer then forwards the request 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 proper documentation and loan closing documents.
Some loan officers are paid by commissions. This commission is a prepaid charge and is often negotiable. Commission fees are generally higher for mortgages than for other types of loans.
It is important to know that the big banks work exclusively through their own loan officers. A mortgage broker will not be able to offer his products.
Loan officers normally work for a single financial institution and can only offer loans from their employer. They might be able to lower 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 research the best mortgage product for the borrower’s financial situation, then connect borrowers with the lenders who offer them. The mortgage broker also collects documents from the borrower and forwards them to a mortgage lender for underwriting and approval.
A mortgage broker can save the borrower time and effort during the application process, and potentially a lot of money over the life of the loan. Additionally, some lenders work exclusively with mortgage brokers, allowing borrowers to access loans that would otherwise be unavailable to them. Additionally, brokers can get lenders to waive application, appraisal, origination and other fees.
However, the number of lenders a broker can access is limited to 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 take a commission from the borrower, the lender, or both. These fees, called origination fees, are usually 1% to 2% of the loan amount. Mortgage brokers must be licensed to do their job and they must disclose their fees in advance.
A mortgage broker can save you a lot of money over the life of your mortgage. However, you should still do some research beforehand so you know what options are available.
When you work with a loan officer, you deal directly with the institution that will lend you money. When you work with a mortgage broker, you are working with a third party. The broker does not lend you money but facilitates the process between you and a lender.
Loan officers can only help you apply for loans offered by their employers. Mortgage brokers deal with many lenders and may be able to find the best deal for your situation.
In both cases, you will pay a commission and a fee. 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 you apply for a mortgage. It will be listed in the Loan Costs section under “A: Set-up Fee”.
There are advantages to applying directly through a loan officer. Because they are employed by the lender, you can get a reduction in their rates and closing costs. You can get an exception based on your unique income and financial situation, and you’ll have access to any down payment assistance (PAD) programs you qualify for.
If you go this route, your approval will be processed “in-house”.
Is a loan officer a mortgage broker?
No. A loan officer is employed by a bank or other financial institution and only offers 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 to use a mortgage broker than a loan officer?
No. Mortgage brokers and loan officers are considered mortgage originators (MLOs) and must meet strict federal requirements to help negotiate mortgages.
Why use a mortgage broker rather than a bank?
A bank’s loan officers can only recommend that bank’s products. Mortgage brokers work with many lenders and may 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 indicated on your mortgage application.
Whether you choose to work with a loan officer or a mortgage broker, pay close attention to the fees and commissions they will charge you.
Before meeting either, spend some time researching the best deals available at the time and the types of loans available. You’ll be paying your mortgage for a long time and it makes sense to get it right.