Mortgage Lender Vs. Loan Officer Vs. Mortgage Broker: What’s the Difference?
31 May 2022
Image by Alexandr Podvalny from Pixabay
When you’re trying to finance your first home, a huge barrage of new terms and concepts fly your way. The worst part is – you can’t even tell apart the people who are trying to help you.
Getting approved for a mortgage is no small feat, and it’s an event that will determine the next couple of decades of your life. Don’t let any part of the process go unexamined from your side.
This article will explain the difference between a mortgage lender, a loan officer, and a mortgage broker.
What is a mortgage broker?
A mortgage broker is an ‘in-between’ man. Their job is to connect the person looking to lend money with the people willing to lend it to them. A mortgage broker is a sort of cupid for the two parties, the lenders and the lendees.
Say you’re buying a house for the first time and in a new neighborhood. You could spend months researching the current housing market, choosing the perfect lender, and fretting whether you’ll be accepted or rejected.
This is where a mortgage broker can save you a huge amount of stress. They can use their developed network of lenders, both private and institutional, and find a payment program that will be best for both parties. They can even help with filling out and filing the mortgage application.
When approaching a mortgage broker, you’ll need to prepare some basic information. This includes your desired interest rate and your credit score.
An important thing to keep in mind is that mortgage brokers don’t actually lend the money. Not only that, don’t actually have the say in whether you’ll get accepted or rejected. A good strategy is to narrow down your choice of lenders to two or three and then let a broker help you finalize your choice.
Mortgage brokers do charge a fee, usually a commission based on the loan amount. The loan documents will list the costs as ‘loan origination fees.’ Their advice usually pays off in the long run, though – they will probably recommend loan conditions that end up saving you money.
What is a loan officer?
Loan officers do much the same as mortgage brokers – help with facilitating the loan. However, rather than being a third party in the affair, loan officers work for the mortgage lender, i.e., credit union, bank, or other financial institution.
A loan officer is the first person you will interact with when approaching a financial institution for a mortgage. Trained and well versed with the specific institutions loan policies, offers, and conditions, a loan officer assesses your situation and offers you the best deal that satisfies both parties.
When they’ve found a mortgage program you both agree on, a loan officer will then pass your application down to an underwriter. The underwriter then re-assesses it, and if all goes well, he gives the green light to the loan officer.
The loan officer is then tasked with administering the paperwork and the loan closing documents.
Like mortgage brokers, loan officers also work for a commission. This commission is usually negotiable, but keep in mind that a mortgage bears with it the biggest loan officer fee.
Most big banks administer their mortgages through their own loan officers and rarely work with mortgage brokers. A loan officer can help you get a better deal with the bank they’re working for, will know the ins and outs, conditions, and prerequisites like the back of their hand.
However, because they are contractually tied to one institution, loan officers cannot offer you products from other lenders.
Image by Alexandr Podvalny from Pixabay
What is a mortgage lender?
The mortgage lender is the main ingredient in the soup. They’re the ones forking over the money.
A mortgage lender can be a financial institution, an individual, or a group of people.
Mortgage lenders have the funds to help you buy your home. They can lend the money to you and expect it to be returned within an agreed upon time frame, with interest. There are various types and names for mortgage lenders, depending on how they get their funds, how they find clients, and the types of services they provide.
Financial institutions, i.e., banks and credit unions, are the most common lenders in the US. They can offer the most stable lending product, as well as have the credibility and reliability essential for making big financial moves, like buying a house.
If you’re already set on wanting to take a loan from a major financial institution, there is no need for a middleman such as a mortgage broker. In fact, most banks don’t work with mortgage brokers and delegate a loan officer for every potential client.
If you don’t have the cash to purchase a house outright, a lender is the only way to go. Lenders vary widely on the type of loans they offer.
If you don’t want to hire a broker to advise you, you’ll need to do a lot of research to find an institution that fits your current credit situation the best.
Fortunately, the internet is full of useful information, data sheets, and educational articles. There are even online banks, that is banks that don’t have a physical location, that often offer the best loan conditions.
What to do before applying for a loan
When applying for a mortgage, whether you decide to go through a broker or not, there are a few things you can do.
You can check your credit rating, as the lenders will do that as well. That is called a hard inquiry. Your credit rating determines your creditworthiness, and you can find a lot of tips online on how to check it and prepare it for applying for a loan. For one thing, you should pay off any lingering credit card debt, dispute any inaccuracies in your credit rating and make sure you know what your debt-to-income ratio is.
The ‘hard inquiry’ that lenders make when you apply for a loan shows on your credit score and temporarily lowers it. That means that you shouldn’t apply to many loans at once during a short time span, as this can adversely affect your score.
Keep in mind that the larger your down payment is, the better terms you’ll be able to strike up with the lender. Be realistic about what you can give right away and what you can afford on a monthly basis.
Conclusion
Let’s summarize. A mortgage broker and a loan officer have the same job but a different employer. They both act as intermediaries between you, wanting to lend the money, and the financial institutions, wanting to lend it to you.
Loan officers work exclusively with a single institution, while mortgage brokers don’t. That means that while loan officers can offer you better interest rates and plans with one lender, brokers can have insight into the wider financial situation and market state. Big financial institutions usually don’t work with brokers.
Mortgage lenders are the individuals, groups or financial institutions willing to lend money. Loan officers and mortgage brokers act as intermediaries between the lenders and the lendees.
A mortgage is a 25 year commitment, on average. You don’t want to make decisions lightly.
Lucas H Parker
Lucas is a business consultant from Minneapolis, Minnesota. Besides that, he has a passion for writing. Doing his research, exploring, and writing are his favorite things to do. Besides that, he loves playing his guitar, hiking, and traveling.
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