Mortgage Brokers vs. Loan Officers: What’s the Difference?
A loan officer represents one lender. A mortgage broker can help you shop around with multiple lenders, for a fee.
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Contributing Writer Maybe you’ve heard the term "mortgage broker" from your real estate agent or friends who’ve bought a home. But what exactly is a mortgage broker, and what do they do that’s different from, say, a loan officer at a bank?
Here are answers to common questions about working with mortgage brokers vs. loan officers.
What is a mortgage broker?
A mortgage broker acts as a liaison between you and multiple lenders. The broker’s job is to compare mortgage lenders on your behalf and find the most competitive interest rate and overall offer.
Mortgage brokers are licensed and regulated financial professionals who do a lot of the legwork. They gather information from you, such as:
- Documents
- Credit history
- Income and employment verification
They use this information to help you apply for loans and negotiate terms.
Once you decide on a loan and a lender that works best for you, your mortgage broker collaborates with the bank’s underwriting department, the closing agent (usually the title company) and your real estate agent to keep the transaction running smoothly through closing day.
What makes mortgage brokers different from loan officers?
You can get a mortgage from a broker or a loan officer. The main differences are who they work for and how they get paid.
| Mortgage brokers | Loan officers | |
|---|---|---|
| Where they work | Independently, or within a brokerage firm | Full-time employee of one lender (such as a bank, nonbank or credit union) |
| Lenders represented | Many | One |
| Loan selection | Broad | Exclusive to one lender |
| Fee | Additional 1-2% of loan amount | No additional cost |
| Who pays? | Borrower or lender, never both | N/A (no additional fee) |
Loan officers are typically full-time employees of one lender who are paid set salaries (plus bonuses). They can only write the types of loans their employer offers.
Mortgage brokers, who can work within a mortgage brokerage firm or independently, deal with many lenders to find loans for their clients. Thus, mortgage brokers may be able to give borrowers access to a broader selection of loan types.
How much does it cost to use a mortgage broker?
Typically, a mortgage broker charges a fee equal to 1%-2% of the loan amount. For a $300,000 loan, that would be $3,000-$6,000. Lenders typically pay mortgage broker fees; in some cases,borrowers do — but, by law, never both.
That same law — the Dodd-Frank Act — also prohibits mortgage brokers from charging hidden fees or basing their compensation on a borrower’s interest rate.
Borrowers are encouraged to shop around for mortgage brokers and should ask how much they can expect to pay in fees.
Should I use a mortgage broker or go directly to a lender?
Mortgage brokers charge a fee, but they can save you time and money. You don’t need to use a broker to get a mortgage if you’re willing to do the work yourself by shopping around and comparing rates yourself at different lenders.
However, it can take hours to go through mortgage preapproval with different lenders, and you should anticipate some back-and-forth communication involved in underwriting the loan and ensuring the transaction stays on track. A mortgage broker can save you the hassle of managing that process.
When choosing any lender — whether through a broker or directly — you'll want to pay attention to lender fees. Specifically, ask what fees will appear on Page 2 of your Loan Estimate form in the Loan Costs section under "A: Origination Charges."
Then, take the Loan Estimate you receive from each lender, place them side by side and compare your interest rate and all of the fees and closing costs.
» MORE: Steps to buying a house
Choosing a mortgage broker: Questions to ask
Here’s what to consider when doing your research to find a mortgage broker.
- Do I have a trusted referral? Ask friends, relatives or your real estate agent for referrals. Make sure they have actually used the broker and aren't just dropping the name of a former college roommate or a distant acquaintance. If you’re working with a real estate agent, some companies offer an in-house mortgage broker as part of their suite of services — but you’re not obligated to go with that company or individual.
- Are they licensed? Check your state’s professional licensing authority to ensure they have mortgage broker’s licenses in good standing.
- What do reviews say? Read online reviews and check with the Better Business Bureau to assess whether the broker you’re considering has a sound reputation.
- Can they meet for an interview? Finding the right mortgage broker is just like choosing the best mortgage lender: It’s wise to interview at least three to find out what services they offer, how much experience they have and how they can help simplify the process.
- What’s their working style? To find the right fit, ask about the broker’s services, communication style, level of knowledge and approach to clients.
» MORE FOR CANADIAN READERS: Mortgage brokers in Canada: What they do
NerdWallet writer Isabella Angelos contributed to this story.
Frequently Asked Questions
What does a mortgage broker do?
A mortgage broker finds lenders with loans, rates and terms to fit your needs. They do a lot of the legwork during the mortgage application process, potentially saving you time.
How do mortgage brokers get paid?
Mortgage broker fees most often are paid by lenders, though they sometimes can be paid by borrowers. Competition and home prices will influence how much mortgage brokers get paid.
What’s the difference between a mortgage broker and a loan officer?
Mortgage brokers will work with many lenders to find the best loan for your situation. Loan officers work for one lender.
How do I find a mortgage broker?
The best way to find a mortgage broker is through referrals from family, friends and your real estate agent. But don’t just take their word for it. Do your homework when selecting a mortgage broker by investigating their licenses, reading online reviews and checking with the Better Business Bureau.
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