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Updated on Thursday, April 30, 2020
When you’re shopping for a home loan, you may wonder about using a mortgage broker versus a loan officer. While both ask the same questions about your financial situation and help you fill out a loan application, their roles are different.
A loan officer offers mortgage options only from the financial institution they work for, while a mortgage broker acts as a matchmaker between you and a number of different mortgage lenders. Learn the key differences and responsibilities of each type of mortgage professional so you can decide which one you want to work with.
- What do mortgage brokers do?
- What do loan officers do?
- Pros and cons of working with a mortgage broker vs. a loan officer
- Is it riskier using a mortgage broker vs. a loan officer?
- Mortgage broker fees vs. loan officer fees
- Where to find a mortgage broker or loan officer
What do mortgage brokers do?
The term “broker” refers to someone who negotiates on someone else’s behalf. A mortgage broker works with many lenders to find you loan programs with the best rates, terms and lowest closing costs for your situation, but the broker doesn’t actually lend you money.
The term mortgage broker is often used interchangeably with “loan officer,” but there are very important differences.
“A mortgage broker is a business entity that originates mortgage loans,” said Rocke Andrews, president of the National Association of Mortgage Brokers (NAMB).
In other words, a mortgage broker is a type of mortgage business, while a loan officer is a salesperson paid to give you the information needed to choose a mortgage that fits your needs. However, a loan officer is also licensed as a mortgage loan originator (MLO), which means they may also work for a mortgage broker, Andrews said.
What do loan officers do?
A loan officer (LO) is usually an employee of an institutional bank, credit union or mortgage lender. They review financial documents and can recommend a loan for preapproval to an underwriter who works for a mortgage bank or lender.
A loan officer originates mortgage loans and there are two types: a licensed professional loan originator and a registered loan originator, Andrews said.
Licensed professional loan originators must take extra education, pass a national test and meet the licensing requirements of the states they do business in. Registered loan originators typically work for federally chartered institutions like banks and don’t have to meet the same education and testing requirements as licensed MLOs.
Loan officers offer only the mortgage products of one financial institution. The lenders they work for lend the money, and you’ll typically make payments to the same company after closing.
Pros and cons of working with a mortgage broker vs. a loan officer
In many ways, a mortgage broker and mortgage loan officer perform the same tasks. They each review your loan application and financial paperwork to make sure you meet the minimum mortgage requirements. Here are benefits and drawbacks worth considering when deciding between a mortgage broker and a loan officer.
Pros and cons of working with a mortgage broker
You’ll get rates and fees from multiple lenders.
You have to wait for the lender to make the final approval decision.
You won’t have to do all the mortgage shopping yourself.
You may not be approved for special exceptions for a bad credit history.
You’ll have more loan products to choose from.
You may have limited access to down payment assistance (DPA) programs.
You can switch lenders if your loan is denied.
Your broker doesn’t control the approval process and doesn’t lend you money directly.
Pros and cons of working with a loan officer
You may get a break on rates and closing costs, depending on your relationship with your bank.
Your interest rate options are limited to the LO’s financial institution.
Your approval will be handled “in house,” meaning the lender can approve your loan and provide money to you directly.
You’ll have limited choices for loan products offered only by the loan officer’s company.
You may get an exception for unique income and financial situations.
You’ll need to start over with a new lender if you’re denied.
Your bank may be approved for more DPA programs.
You’ll contact several lenders on your own if you want to compare multiple offers.
Is it riskier using a mortgage broker vs. a loan officer?
No. Both mortgage brokers and loan officers are considered mortgage loan originators (MLOs), and have to meet strict federal requirements to be paid for helping negotiate mortgage loans.
To become a licensed MLO, a mortgage broker or loan officer must:
- Pass an FBI criminal history background check.
- Provide a credit report.
- Provide proof of their mortgage loan activity to a national database, such as the Nationwide Multistate Licensing System (NMLS).
- Pass a national mortgage test.
- Take 20 hours of education courses.
Mortgage broker fees vs. loan officer fees
Mortgage brokers and mortgage loan officers have to follow strict compensation rules set by the federal Truth in Lending Act. Mortgage brokers can’t make more than 2.75% of the loan amount and must pay all of their costs and loan originator compensation out of that percentage, Andrews said.
Banks can make additional income because it’s not counted as part of the charge, but loan originators can’t make more than 2.75% of the loan amount, Andrews added.
Both mortgage brokers and mortgage banks pay loan officers a fixed percentage of the loan amount, although there may be variations, Andrews said.
To protect consumers, all mortgage loan originator compensation has to meet the following federal guidelines:
- The pay must be based on a fixed percentage of the loan amount.
- The compensation cannot be based on charging a higher interest rate or adjusting the terms of the loan.
- Originators can’t receive a fee for referring a client to a business partner, such as a title company or real estate agent.
- No mortgage originator may be paid by both the borrower and the lender. It must be one or the other.
Where to find a mortgage broker or loan officer
Ask friends or family who recently bought or refinanced their homes for a referral. Your real estate agent is also a good resource for mortgage broker or loan officer referrals. Use a comparison rate site and review offers from three to five mortgage companies.
You can research the background of a mortgage loan originator through these resources:
- Nationwide Multistate Licensing System (NMLS). The loan estimates you receive within three business days of your application will include the NMLS “unique identifier” of each loan originator. This number is assigned so consumers, employers and regulators can track a mortgage broker’s or loan officer’s professional status online. Visit the NMLS Access Center to look up any licensed or registered MLO across 59 state and territorial agencies in the United States.
- Consumer Financial Protection Bureau (CFPB). The CFPB publishes consumer complaints and the company’s response for consumers to review on its consumer complaint database.