Homeownership is a big step in life, but navigating through the home search to closing can be a daunting task. You don’t have to do it alone! Along the way, you’ll have the opportunity to meet with professionals like real estate agents, mortgage brokers, and loan officers—experts who can guide you through the homebuying journey.
A mortgage broker is an intermediary between the borrower and various financial institutions who helps find the right financing for home buyers. On the other hand, loan officers are employed by individual lenders and work directly with borrowers to apply for and obtain their loans. Both of these professionals play major roles in obtaining mortgages, but there are some key differences between them.
Many assume that these roles are interchangeable, but mortgage brokers and loan officers operate differently from one another. Let’s take a closer look.
What is a mortgage broker?
A mortgage broker is a licensed intermediary between a borrower and potential lenders. Their job is to search around and find the best interest rates and lenders for your financial situation, whether it be a mortgage through a wholesale lender, credit union, bank, or another option. Should you choose to work with a mortgage broker, you won’t be dealing with a bank or lender directly; all communication will take place through the broker.
It’s important to note that brokers are not employees of banks. They operate independently, which means they are not beholden to any specific financial institution. Brokers make their money from a fee based on the total of the mortgage. In most cases, the borrower will pay this fee, but in some instances, the lender covers this cost.
What does a mortgage broker do?
A mortgage broker wears several different hats throughout the lending process. Should you choose to work with one, they’ll help you with the following.
- Brokers can help you determine qualifications. Mortgage brokers will collect all of the necessary documentation like bank account statements and pay stubs, which are used to assess your ability to pay off a loan. They will be able to identify if anything in your financial history or records is likely to cause issues getting a mortgage and find solutions to the problems.
- Brokers can find the best lender and interest rates. Mortgage brokers will work with many lenders— banks, credit unions, wholesale lenders, etc.— to find the best deals for the borrower. Since they regularly deal with a variety of lenders, they track current rates and fees for each and can help find you options that you might not find on your own.
- Brokers can guide you through loan application. Once you start applying for a loan, the broker will help guide you in the application process. They can even help you submit paperwork to the lender; however, they aren’t the ones that approve (or deny) your application.
Throughout all of these processes, a mortgage broker will be the go-between you and lenders.
What is a loan officer?
A loan officer is a financial professional who specializes in helping clients obtain mortgages and other real estate financing. Unlike brokers, loan officers are employed by a financial institution like a bank or credit union. This means that they only offer loans from that one lender.
What does a loan officer do?
Loan officers have some overlap with brokers when it comes to duties, as well as some unique features.
- Loan officers can help you get preapproved or prequalified for a mortgage. Before you’re ready to purchase a home, a loan officer can help you get preapproved or prequalified for a loan, which has numerous benefits when house hunting.
- Loan officers can give you the best rate at their institution. Loan officers assess each client's particular situation and then work to find suitable loan products that meet their needs by evaluating credit history, income, assets, and more. They may also be able to get you a better rate at their institution than a broker.
- Loan officers guide you through the application process. Like brokers, loan officers will help you gather the right paperwork, and will help with any questions or issues along the way. They then process the loan application and guide you through the next steps if you’re approved.
- Loan officers may also have more access to resources like down payment assistance programs, which they can help you apply for.
Loan Officers vs. Mortgage Brokers: How They Compare
So which option is better? It depends on your situation! Here are two pros and cons charts to help you decide.
Loan officers may be able to offer you better rates or discount points at their institution that brokers do not have access to.
Loan officers have access to only one lender’s offerings.
Working with a loan officer means you’ll be working directly with those that make lending decisions and fund your loan, which can be helpful if you have an unusual financial situation such as self-employment.
To compare loan offerings from several direct lenders, you’ll have to work with multiple loan officers.
You may already have an existing relationship with your bank or credit union, which makes managing the loan easier and finances easier.
You’ll pay for a loan officer’s work during closing through origination fees.
Mortgage brokers can easily help you compare lenders, saving you time and effort.
Brokers may not have access to all lending options, as some lenders do not work with brokers.
Some lenders give brokers special rates for their customers.
Brokers ultimately have no control over lending decisions.
Brokers can sometimes help work with lenders to waive their fees at closing.
Brokers may steer you towards lenders who offer them incentives or commissions, which is why you should be cautious if a lender claims to waive or pay broker fees.
A mortgage broker is not like a bank and does not offer other financial services. If you get a mortgage through your credit union or bank, you can keep all of your financial services together under one provider.
Research to Find the Best Option
To make the best decision, research and get quotes from both a broker and several direct lenders. Remember, getting a quote or estimate does not obligate you to choose either option. Putting in the extra legwork may take time, but it can potentially save you thousands over the life of your loan. Take your time to find a professional and institution that you can trust.