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When you have questions regarding the mortgage process or how to shop for the best mortgage options, it can be difficult to know whom to ask. Generally, you can work with a mortgage broker, loan officer or mortgage lender for guidance through the various stages of the process. While some of their duties may overlap, there are differences you should understand before proceeding. The trick is learning what they do, what they charge and how they can help.
What Is a Mortgage Broker?
Mortgage brokers offer clients a wide variety of mortgage options from banks, mortgage lenders and credit unions. They work independently to connect you with lenders so you can find the best mortgage product with the best rates and terms tailored to your financial situation.
As licensed professionals, mortgage brokers are knowledgeable about the different kinds of mortgages available as well as the mortgage lenders in the market and the fees, contracts and repayment terms they offer. Before you begin working with a mortgage broker, make sure they are licensed with the Nationwide Mortgage Licensing System & Registry (NMLS), which maintains a database of licensed brokers.
Mortgage brokers might help you fill out your mortgage application and recommend a loan officer or lender that best meets your needs based on your income and credit profile. They do not lend money or approve your loan application, however. Instead, they help connect you with a lender who will.
Mortgage brokers charge a fee for their services, which is a small percentage of the loan amount, usually between 1% and 2%. The borrower or lender may pay the fee. If you pay the fee, it can be added to the loan amount or paid upfront.
What Does a Mortgage Broker Do?
Mortgage brokers match your financial profile to a mortgage with the lowest costs and best rates. And, although they collect your relevant documentation—pay stubs, tax paperwo and bank statements, for example—they simply pass it along to the mortgage lender for underwriting.
The financial institution approves or denies your mortgage loan, which is something a broker can't do on their own. If your credit needs work, you're self-employed, you have a tight budget or have many questions about the mortgage process, working with a broker might help the mortgage approval process go more smoothly.
A mortgage broker's other duties can vary but generally include the following:
- Educating themselves on the finances of borrowers
- Researching the real estate market to find a suitable mortgage for their clients
- Helping potential borrowers get preapproved for a mortgage loan
- Completing the mortgage loan application.
- Ensuring borrowers understand all legal disclosures
Pros and Cons of Working With a Mortgage Broker
When buying a home and looking for a mortgage, working with a mortgage broker offers several key benefits as well as a few drawbacks.
Pros:
- More choices: Mortgage brokers are independent professionals who work with multiple lenders. For this reason, they can often save you time searching for a suitable lender.
- Cost savings: Because they educate themselves on your financial situation and the market, a mortgage broker can typically find you a better mortgage loan than you might find on your own. They may also work with your lender to waive fees, such as application and origination fees.
- Flexibility: Not all lenders work in the same way. Because a mortgage broker can work with multiple lenders, your broker can find one that meets your individual needs.
Cons:
- No guarantees: Although mortgage brokers work with many lenders, there is no guarantee they will find the best mortgage rates and terms to meet your needs.
- Higher fees: As fees can vary from lender to lender, a mortgage broker may steer you toward a lender that pays them a higher fee. Before working with a broker, find out how much you'll pay in fees, who pays the broker fees and when they are due.
- Fewer options: Not all banks, credit unions or other lenders work with mortgage brokers, which can mean you miss out on loan options that might be more suitable to your needs.
What Is a Mortgage Loan Officer?
When you call a bank, credit union or other financial institution to apply for a loan, you typically speak with a loan officer. The same is true when applying for a mortgage. The loan officer is usually the first point of contact. During an initial interview, they meet with you to answer questions and review your loan application to determine your creditworthiness and if you'll meet a lender's eligibility requirements. They also explain the various loans available from the institution.
Unlike a mortgage broker who works independently, a loan officer typically works for one company. They are responsible for seeking out clients for the bank or credit union and developing relationships with these clients on behalf of the bank.
What Does a Loan Officer Do?
A loan officer analyzes loan applications, explains the various mortgage options available from the lender and helps you with the mortgage application process. They also serve as an intermediary between you and the underwriter if you decide to move forward with your loan application. Loan officers also perform several other duties, including:
- Talking with potential mortgage loan applicants to gather information and help them navigate the loan process
- Possibly helping with the loan preapproval or prequalification process
- Explaining the different types of loans and the rates and terms of each type
- Gathering, verifying and evaluating applicants' financial information
- Ensuring loan agreements comply with federal and state regulations
- Approving loan applications or referring them to underwriting and management for a final decision
Pros and Cons of Working With a Mortgage Loan Officer
While a loan officer provides the benefit of working hands-on to recommend loan products that match what you are looking for, there may be a few disadvantages to consider.
Pros:
- Possible savings: Because loan officers are employed by the lender, it's possible they can work to save you money on closing costs or even get better rates and terms on your loan.
- Builds trust: Most loan officers work hands-on with their clients, which can build trust and increase your confidence that you'll get the right loan to meet your needs.
- Expert knowledge: Loan officers understand all of the loan products a company offers. They may even have access to down payment assistance programs and provide other ways to save you money.
Cons
- Fewer choices: A loan officer can only offer mortgage options offered by the bank, credit union or other financial institution they work for. That can mean fewer loan options than the bank down the road may offer.
- Rates and terms: Because you'll be working with one financial institution, you may not get the very best rates and terms available.
- Possibly slower process: Although you may have a relationship with your bank or credit union, it may not mean the application process will go any faster. Your information will not be automatically loaded into your application.
What Is a Mortgage Lender?
A mortgage lender is a financial institution, like a bank or credit union, that originates and facilitates mortgages. When considering your mortgage application, a mortgage lender looks for a number of factors, including a favorable credit history, stable income and a low amount of debt and loan-to-value ratio (LTV), among other things.
Typically, mortgage lenders not only help with the application process but may also underwrite and approve your loan, and guide you through the closing process. You then then make payments to the mortgage lender until the mortgage is paid off, unless the mortgage is sold to another company.
What Does a Mortgage Lender Do?
Mortgage lenders lend you money so you can buy a house. Mortgage lenders have a variety of responsibilities when loaning you money, including:
- Pulling your credit report and determining whether or not to approve you for a loan based on your creditworthiness
- Originating loans, such as VA, FHA, conventional or jumbo loans
- Setting up the home appraisal
- Servicing loans by managing the repayment process once your loan closes
Pros and Cons of Working With a Mortgage Lender
As when working with any mortgage professional, mortgage lenders also have arguments in favor of and against.
Pros
- Specialization: Mortgage lenders specialize only in mortgages. For that reason, they can offer expert advice on interest rates and the terms of the various loan types, and answer other questions you may have about the loan process.
- Flexible credit requirements: Because mortgage lenders work with a wide range of clients, in some cases they may be able to offer more lenient credit requirements.
- Time savings: Instead of submitting forms to many individual lenders, mortgage lenders help you identify and choose the best option available to you, saving you valuable time.
Cons
- Possibly limited options: Unlike a broker who works with many lenders, mortgage lenders make loans directly to you, so your mortgage options could be limited.
- Potential for online-only service: If your mortgage lender does not have a physical location near you, they may provide online-only services, eliminating the face-to-face service you may like.
- Loan servicer might change: Although a mortgage lender funds your loan initially, you may have little say if they decide to sell your loan to another financial institution. Even so, government-mandated protections exist to cover loan transfers from one servicer to another.
How Do Mortgage Brokers, Loan Officers and Mortgage Lenders Compare?
Mortgage brokers, loan officers and mortgage lenders are similar but also have several key differences. Which one you pick depends on your personal circumstances, along with how much work you're willing to put in yourself.
| Mortgage Broker vs. Loan Officer vs. Mortgage Lender | |||
|---|---|---|---|
| Mortgage Broker | Loan Officer | Mortgage Lender | |
| Role | Works independently to help a borrower find a lender | Works for a mortgage lender, like a bank | Originates loans, works with borrowers through loan officers |
| Loan options | Works with many lenders to find the best loan for their borrowers | Only offers loans from employer | Limited to its own lending programs |
| Fees | Charges broker fees—usually between 1% and 2% of the loan amount | May charge a prepaid commission | May charge application and loan origination fees |
| Education and licensing | Must attend training and be licensed in the state they work | Typically need a bachelor's degree; they also receive on-the-job training and must be licensed | Certification and accreditation varies by state |
The Bottom Line
Mortgage brokers, loan officers and mortgage lenders all have the same end goal: to help you obtain a mortgage loan with financing that will allow you to purchase the home of your dreams.
While many of their job duties overlap, there are enough differences to justify shopping around. If you decide to submit mortgage applications at several lenders, make sure to do so within a short period of time—15 to 45 days, depending on the credit scoring model. That way, the applications are rolled into one credit inquiry on your credit report, which reduces the impact to your credit score.