Mortgage Broker vs. Loan Officer

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Gone are the days when getting a loan to buy a property meant strolling into your local bank, sitting down with a banker, and getting set up with a mortgage. Today, there are far more options for home buyers and investors, and often it comes down to working with a mortgage broker vs loan officer.

What is the difference between a mortgage broker and loan officer?

While the terms mortgage broker and loan officer sound similar (semantics, right?), they actually mean two slightly different service offerings. The best way to illustrate the difference between these professionals is to equate them to a real estate broker and a developer’s sales representative. One has access to a large spread of products across the market, while the other is an expert on a limited number of products from a single provider. Both can offer excellent service that leads to the same outcome, just through slightly different paths.

What does a mortgage broker do? 

A mortgage broker is an independent professional who works with multiple lenders to find the best loan product for their clients. Brokers typically have access to dozens, if not hundreds, of different loans from many lenders. This allows them to shop around for the most competitive rate and terms on behalf of their clients.

They can provide valuable advice on mortgage options, terms, and interest rates and can often negotiate better deals with lenders on behalf of their clients. Mortgage brokers can be found in a variety of settings, from small, local businesses to large online companies like Nerdwallet.

Small, Local Mortgage Brokers

Small, local mortgage brokers are often independent businesses that operate in a specific geographic area. They may have only one or a few brokers, or they can be a small mortgage company with a few offices. They work closely with borrowers to find the best mortgage solutions for their needs. These brokers often deeply understand the local real estate market and can provide personalized service to their clients.

Small, local mortgage brokers may be more flexible in their lending requirements than larger institutions. Often, they may have relationships with smaller lenders or private investors that can offer more creative financing options or more lenient lending standards. However, these brokers may not have access to the same range of loan products or competitive rates as larger lenders.

One of the advantages of working with a small, local mortgage broker is the personalized attention they can provide. Borrowers can often meet face-to-face with their mortgage broker and get to know them personally. This engagement can help build trust and confidence in the lending process and help buyers successfully navigate their mortgage applications.

Large Mortgage Broker Companies

Large mortgage broker companies like Nerdwallet are online lenders that offer a remote-based service. They can give borrowers access to a wide range of loan products and rates, and sometimes offer slightly more competitive rates than smaller brokers. In addition, these companies often have teams of loan officers who service customers in a systematic process.

One of the benefits of working with a large mortgage broker company is the convenience of the online application process. Borrowers can easily submit their mortgage applications and documents electronically, track their loan progress online, and communicate with their loan officer via email or phone. Borrowers who choose this route appreciate the online platforms that can save time and simplify the lending process.

The downside of working with large mortgage brokerages is that borrowers may not have the same level of personalized attention as they would with a small, local broker. Often, communication is highly structured, and there are limited creative financing solutions available.

What does a loan officer do?

A loan officer works at direct lenders like banks and other financial institution such as credit unions that offers mortgage loan products. They help customers navigate the mortgage approval process and find the right loan product. However, what makes a loan officer different from a mortgage broker is that they only offer products available from the institution that employs them and cant source loans from other financial institutions.

While loan officers work at all types of banks, some key differences exist between loan officers at small mortgage lenders and those at large institutional banks like Bank of America or Chase.

Small Mortgage Lenders

At small, local banks, loan officers often play a more personal and hands-on role in the lending process. These banks may have fewer loan products, but loan officers can often work with customers to customize loans to fit their needs. Additionally, loan officers who work for a mortgage lender may have more flexibility when approving loans, as they have a better understanding of their local markets and customers. Furthermore, if you are getting a loan from the same bank you keep your bank accounts, the institution can easily review your finances, which often simplifies the application process. For customers who value personal attention and a more customized lending experience, working with a loan officer at a local bank or credit union can be a great option. They can also be an excellent option for borrowers with unique financing requirements.

Large Mortgage Lenders

On the other hand, loan officers at large institutional banks (think Bank of America or JP Morgan Chase) have access to a much wider range of loan products and may be able to offer more competitive rates and terms. These banks also have the resources to invest in technology and online platforms that help streamline the lending process, making it faster and more convenient for customers.

Regardless of where you choose to get a loan, loan officers remain limited in that they can only offer products from the lending institution they work with. However, their benefit is that they have expert knowledge of these institutions.

Who costs more, a mortgage broker or a lender?

The cost of using a mortgage broker or a loan officer can vary depending on a variety of factors, including the lender, the location, and the specific services provided. However, as a general rule of thumb, mortgage brokers may charge higher fees than loan officers.

How are mortgage brokers paid?

Because mortgage brokers don’t work directly for a bank, they have to charge fees and a commission. Mortgage brokers get paid a total commission of 1-2% of the loan value. However, many buyers erroneously believe they are responsible for paying their mortgage broker’s commission. In fact, the commission is actually paid to the broker by the lender. Borrowers can be responsible for fees, including loan origination fees, upfront fees, or administration fees. 

Before choosing to work with a broker, ask them about their fees. A reputable mortgage broker will be upfront with their fee structure.

How is a loan officer paid?

Loan officers also work for a commission. A bank or financial institution will pay loan officers a 1% commission based on the loan value of deals they close. Working with a loan officer at a bank will also incur fees changed by the bank, but they are often less than those charged by a mortgage broker. Loan officers should provide you with a breakdown of their fees upon request.

>> Agent Answers: Should I buy a house today and refinance later?

Both mortgage brokers and loan officers may have different fee structures and costs, so it’s always a good idea to ask about fees and compare offers before deciding. Ultimately, the cost of using a mortgage broker or a loan officer should be weighed against the potential savings and benefits they can provide in terms of finding the right mortgage product and negotiating favorable terms.

Pros and Cons of Working With a Mortgage Broker

Brokers have access to multiple lenders and loan products, and they help borrowers find the best mortgage deals that suit their needs. However, like any other service, working with a mortgage broker has pros and cons. 

Pros of working with a mortgage broker:

1. Access to Multiple Lenders: Mortgage brokers have access to various lenders and loan products, so they are in the best position to compare mortgage rates and terms from different lenders. While using a broker might be a little more costly, you’re paying for the convenience of an experienced professional who will help you find the best loan for your real estate purchase.
2. Professional Advice: Mortgage brokers have expertise in the mortgage industry and can provide a professional opinion to help you make informed decisions on loan options or structure your finances for the best rate. Brokers can explain the loan process and different mortgage options, including fixed, adjustable, and government-backed mortgages. Brokers will help guide you to the ideal loan product for your financial situation.
3. Save Time: Applying for a mortgage is a time-consuming and stressful process, but a mortgage broker will help simplify the process, so you don’t have to apply with several mortgage loan officers at different banks. A mortgage broker can save you time because they handle most of the legwork. They will help you fill out the application, gather the necessary documents, and submit them to the lender on your behalf.
4. Negotiate on Your Behalf: Mortgage brokers work with lenders to get you better terms and rates, which can save you money for years to come. They have relationships with lenders and can leverage these relationships to negotiate better deals for their clients.

Cons of working with a mortgage broker:

1. Fees: Mortgage brokers charge fees for their services. These fees can range from 1% to 2% of the loan amount. While the costs may be negotiable, they can add up to a significant amount, and you should factor them into your budget.
2. Limited Control: When you work with a mortgage broker, you give up some control over the mortgage process. Brokers act as intermediaries between you and the lender, and they may have different priorities than you.
3. Limited Lender Options: While brokers can access multiple lenders, their loan options may be limited. Brokers may have relationships with only a few lenders and may steer you towards those lenders, even if other lenders offer better terms and rates.
4. Potential Conflicts of Interest: Mortgage brokers may have conflicts of interest that can affect the mortgage process. For example, brokers may receive commissions from lenders for directing business to them. This may lead brokers to prioritize lenders that offer higher commissions, even if those lenders do not offer the best terms and rates.

Should you work with a mortgage broker or loan officer?

Deciding whether to work with a mortgage broker or loan officer depends on your financial situation and preferences. Both mortgage professionals will help you through the loan application process and can fulfill your finance requirements.

If you have yet to decide if you want to work with a broker or loan officer from a direct mortgage lender, your best source of guidance is often your real estate agent. An experienced local real estate agent will help you find the right mortgage professional for your property transaction. Find a trusted local real estate agent with FastExpert. Search through thousands of verified reviews to find the right expert you can rely on.