Loan Officer vs. Mortgage Broker: An Overview
Borrowers commonly have two options when securing a mortgage: a loan officer or a mortgage broker. Loan officers and mortgage brokers prepare loan applications and get them processed, but their methods vary.
A loan officer works for a bank, a credit union, or a mortgage lender and generally offers only the programs and mortgage rates available from that institution. A mortgage broker works on a borrower’s behalf to find the best rate and loan from various institutions.
Key Takeaways
- Loan officers work for mortgage lenders such as banks or other financial institutions.
- Mortgage brokers are independent and can recommend the best fit for the borrower’s needs from many institutions.
- A loan officer commonly works on commission.
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Loan Officer
Loan officers represent the mortgage lender they work for and help borrowers apply for loans offered by the financial institution. Loan officers know the lending products, banking industry rules and regulations, and the required loan documentation to advise their clients.
Loan officers help guide borrowers based on their financial circ*mstances and assist with the mortgage process. They work with the lender's underwriter, who reviews the applicant's creditworthiness and ability to pay the loan. When the loan is approved, the loan officer prepares the mortgage 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 other types of loans. Large banks commonly work exclusively through their loan officers, and an independent mortgage broker will not offer their products.
Loan officers work for just one financial institution and can only offer loans from their employer. A borrower's options are limited to the company offerings.
Mortgage Broker
Mortgage brokers represent more than one lender and work with a variety of financial institutions such as banks, credit unions, and mortgage lenders. A mortgage broker acts as a matchmaker to find the best mortgage product for the borrower’s financial situation and connect applicants with the right lenders.
The mortgage broker may gather paperwork from the borrower and pass it along to a mortgage lender for underwriting and approval. Some lenders work exclusively with mortgage brokers, providing borrowers access to loans that otherwise would not be available to them. Brokers may negotiate with lenders to waive application, appraisal, origination, and other fees.
The number of lenders that a broker can access is limited to the institutions that have approved their services. Mortgage brokers earn a commission from the borrower, the lender, or both. These commissions, known as origination fees, are commonly 1% to 2% of the loan amount. Mortgage brokers must be licensed and must disclose their fees upfront.
Key Differences
When borrowers work with a loan officer, they deal directly with the institution that will lend them money. When borrowers work with a mortgage broker, they work with a third party. The broker merely facilitates the process between the borrower and the lender.
Loan officers can only offer loans from their employers. Mortgage brokers deal with many lenders and may be able to find a range of options for their clients.
Whether using a broker or a loan officer, borrowers can find out what fees they’re paying on the loan estimate that they receive when applying for the mortgage, commonly found under “Origination Charges.”
What Is the Benefit of Using a Loan Officer?
There are advantages to applying directly through a loan officer. Because the loan will be considered "in-house," borrowers may get a break on their rates and closing costs and may have access to any down payment assistance (DPA) programs for which they’re eligible.
What Is a Mortgage Loan Originator?
Mortgage brokers and loan officers are considered mortgage loan originators (MLOs) and meet strict federal requirements to help negotiate mortgage loans.
Why Use a Mortgage Broker Instead of a Bank?
A bank’s loan officers can only recommend their bank’s products. Mortgage brokers work with many lenders and might be able to find a better deal for each borrower.
The Bottom Line
Whether borrowers work with a loan officer or a mortgage broker, they should pay careful attention to the fees and commissions charged. Consumers can also research loan products before choosing a lender and representative.
