Mortgage Broker or Loan Officer? Study Up on the Main Differences

Do you belong to one of the 34% of American households still renting? If you’re ready to make the move toward homeownership, you’ve got a lot of decisions ahead of you.

The most important one might just be finding a mortgage professional you can trust. That’s because a home is probably the biggest purchase you’ll ever make.

So, should you work with your local bank? A nearby credit union? Or maybe the mortgage broker your coworker recommended? But first… What’s even the difference?

If you’re trying to decide between a mortgage broker and a loan officer, you’re not alone. The good news is that understanding the differences and even looking at recent buyers and their choices can help guide your decision-making process.

Research shows that more and more buyers are choosing to work with mortgage brokers. And, as it turns out, they might just be onto something.

What is a Loan Officer?

Loan officer (LO): An employee who works in the loan department of a bank.  An employee who works in the loan department of a bank. Their main job is helping borrowers apply for loans. That includes home loans.

The biggest thing to know here: A loan officer can only connect you with loans that are offered through their employing bank. So, if you love your bank and their loan products, score!

Now, let’s talk moolah. If you choose to work with a loan officer, who pays? Loan officers are usually paid a salary by the bank. But they might also earn a commission on each loan they originate. If your loan officer or bank charges a fee as the LO’s commission, you might be able to roll that expense into your home loan or just pay it out of pocket.

Benefits of Using a Loan Officer

So, why might you choose to work with a loan officer? Some of the big benefits include:

• Familiar faces. Are you already BFFs with some of the staff at your local bank or credit union? That familiarity might make the process a bit less stressful.
• Less shopping around. Working with a loan officer might mean less interviewing lenders and weighing loan options. If you know you’ll come down with a case of decision fatigue, this route might make some sense.

What is a Mortgage Broker?

Mortgage broker: A mortgage pro who works to connect borrowers with the right lender for their unique goals and situation. Think of them as the matchmaker between you and a mortgage lender.

The most important thing to remember about mortgage brokers is that they don’t work with any one bank or credit union. Instead, they help borrowers shop lots of different lenders to hopefully find the right one.

Now for the cost conversation! Unlike loan officers, mortgage brokers don’t usually have a salary. They’re typically paid only through commission. This payment is called an origination fee or broker fee. It’s usually a small percentage of the loan amount—think 1%-2% of the total.

Benefits of Using a Mortgage Broker

So, why might you want to work with a mortgage broker? The primary benefits are:

• Flexibility. Mortgage brokers don’t fund the loans themselves. So, they can usually get you info on lots of different loans from lots of different lenders. This means you might be able to shop around for the best rates or terms.
• Access. Your local mortgage broker might have an in with local real estate agents or hard-to-access lenders. That’s because many have years of experience in finding the right home loan for each unique borrower. In other words, a foot in the door!
• Speed. Banks, credit unions, and other financial institutions aren’t exactly known for their speedy service. But mortgage brokers typically have more access and more opportunity. That might mean more options, provided more quickly. And just a few days’ difference could make or break your purchase.
• Personal connection. Mortgage brokers usually work very closely with their clients. That’s because, with so many loan options to consider, they need to really get to know your wants and needs.

The Growing Popularity of Mortgage Brokers and Non-Bank Lenders

So, are you leaning toward working with a mortgage broker over a loan officer? You’re not alone.

Banks and credit unions ran the mortgage game for a while. After all, independent mortgage brokers only had ~16% market share just five years ago. Then, the real estate market evolved.

Today, borrowers like you want speed, flexibility, and personal connection more than ever before. So, mortgage brokers stepped it up.

And for good reason. With sky-high prices, low supply, and fluctuating interest rates, lots of buyers just need more options. Mortgage brokers understand that home loans usually aren’t one-size-fits-all, so it’s no wonder these professionals are in high demand.

Wrapping Up: Mortgage Broker Versus Loan Officer

Choosing a home loan is serious business. After all, you’re looking at the next 15-30 years of your life!

And the decision to work with a mortgage broker or a loan officer is a personal one. The right answer will depend on your goals, preferences, and personal financial situation.

Whatever you choose, remember that this person will be a key player on your homebuying team. So, interview a few different mortgage pros and be sure to do your due diligence. Good luck!