It’s no secret that mortgage shopping is often among the most stressful parts of the already-stressful home buying journey. One of the many big decisions would-be homeowners need to make is whether to work with a mortgage broker or a loan officer. While either path will get you where you’re going eventually, the experience leading up to signing your mortgage can vary widely. While the term “mortgage broker” is often used interchangeably with “loan officer,” their roles are not the same.
With all that in mind, here’s a breakdown of the two roles and what you should know about each before coming to a decision!
What does a mortgage broker do?
Often confused with mortgage banks (or loan officers!), a mortgage broker’s job is not to lend money directly, but to negotiate on your behalf—a middleman, if you will. To break it down into simple terms, mortgage brokers are financial experts who work with numerous different lenders in order to offer a diverse range of lenders and loan programs to their clients. Their aim is to find you the best rates, terms, and lowest closing costs for your particular needs.
In return for pairing you with the lender that best suits your specific needs and goals, they charge a fee—most often a 1-2% commission paid out by the lender after closing, or up to 2.75% at most. In spite of this fee, many find it convenient to work with a mortgage broker because you need only submit one application—they’ll take care of the rest by distributing it around to different potential lenders, so you save on the cost of any additional applications.
All mortgage loan brokers are licensed professionals and must complete a pre-licensure program administered by the National Mortgage Licensure System which covers relevant federal and state laws and financial regulations around mortgages, loan officer ethics, mortgage origination, and lots more.
What does a loan officer do?
Loan officers generally work for federally chartered institutions like banks, credit unions, or mortgage lenders and they are limited to selling mortgage products offered by the institution that employs them. That’s why, typically, mortgage brokers are better equipped to offer clients a wider range of options, including lesser-known lenders that might offer stronger terms the usual known entities. On the other hand, loan officers review your financial documents and can recommend a loan for pre-approval if they see fit.
A loan officer’s (usually non-negotiable) fees are paid directly by the lending institution. While their costs do not typically exceed what a mortgage broker would charge, each time you apply, you’ll need to pay a new fee, which can add up over time.
It’s also worth noting that loan officers are not licensed and do not undergo yearly education or certification. Relatively speaking, most mortgage brokers possess more intricate knowledge of the field.
Roundup: pros and cons of choosing a mortgage broker vs. a loan officer
• They act as an expert guide to help you shop for your mortgage, which can really simplify the process of finding and vetting loans.
• They can help reduce or manage your mortgage-related fees.
• They can offer insight into how much of a mortgage you can actually afford, as well as your likelihood of approval.
• You will get to browse through rates, fees, and terms associated with many lenders.
• You’ll have a much wider variety of loan products to choose from than you would with a loan officer.
• If your loan is denied, you can always switch lenders and try again.
• They can be biased based on existing relationships with lenders.
• The lender makes the final approval decision, so you have to wait on that.
• Since your mortgage broker doesn’t lend you money directly, they don’t control the approval process.
• Depending on your location, it may be difficult to find a quality local broker.
• It’s possible not to be approved for special exceptions based on a bad credit history.
• You may have limited access to down payment assistance (DPA) programs.
• Depending on your relationship with your bank, you could see a reduction of rates and closing costs.
• Your approval is dealt with in-house, which means the lender both approves your loan and provides you with the funds directly.
• It may be possible to get an exception for certain financial or income situations.
• Depending on your bank, down payment assistance (DPA) programs could be approved.
• Your choice of loan products is limited to those offered by the loan officer’s company.
• As far as interest rates go, again, your options are limited to the loan officer’s financial institution.
• If your application is denied, you will need to start all over again with a new lender.
• If you want to compare and contrast numerous offers, you will need to contact several different lenders on your own.
At the end of the day, why use a mortgage broker?
When all is said and done, why should you use a mortgage broker instead of a bank-employed loan officer? The reality is, many homebuyers find it overwhelming to navigate all the necessary steps associated with buying a home. Mortgage brokers are usually the smart choice, since they live and breathe the home buying and financing industry and can answer any crazy question (big or small) you may have about mortgages. Add to this the fact that they are well regulated so will not charge you more than they say they will, and work with your best interests in mind.
Although a loan officer might do their best to get you a good deal, they really can only offer what their employer wants to offer. While no one is saying that loan officers are unprofessional or unqualified to get you where you’re going, at the end of the day, it’s your mortgage and you’ll want to know you got the best loan program out there for your life circumstances. The right mortgage broker will make that their business above all else.