You’ve finally decided to buy a home, and, after examining your finances, have determined a budget that fits your needs. Before house hunting begins, you’ve decided to see what mortgage you’ll prequalify for. Now, you’re considering using either a mortgage broker or loan officer to help find the right mortgage for your needs...but which one is best? There are a few factors to consider before making your choice.
What is a mortgage broker?
A mortgage broker’s job is to help a borrower shop for loans. They connect the borrower with different lenders so they can find a mortgage best suited to their needs. They also help guide the borrower through the mortgage application process by collecting necessary documents and liaising between the borrower and the lender. It’s important to note that lenders themselves are typically not mortgage brokers, though some mortgage brokers are affiliated with a handful of lenders. This union helps both the borrower and the lender. It helps the borrower get in the door and find a competitive mortgage, and it helps the lender by bringing in business.
Usually, the mortgage broker gets paid commission by the lender. You’ll see this cost reflected in your loan under broker fees, which can be up to 2.75 percent of your total loan cost. If you as a borrower chooses a “borrower-paid compensation,” then you pay the mortgage broker directly, and the broker can’t accept any money from the lender.
What is a loan officer?
A loan officer is similar to a mortgage broker. They help the borrower with loan procurement, but instead are an employee of one lender and specialize in loans exclusive to that financial establishment. Chase, for example, has loan officers called Home Lending Advisors that help navigate your different loan options and mortgage rates. They are also what we call mortgage loan originators, or the person responsible for getting a loan up and running for the borrower. If you qualify for a loan at their institution and decide to move forward with this mortgage, they will get your documents over from the underwriting department all the way to closing.
If you don’t make it past the prequalification or application process with your loan officer, you would move on to another lender and therefore, another loan officer. On the contrary, a mortgage broker would stick around to help you find other options.
Should you work with a mortgage broker or loan officer?
If this is your first time shopping for a mortgage or you want access to a wide range of options, a mortgage broker is a good option since they aren’t limited to one lender. If you already know your target lender and are comfortable moving forward on your own, a loan officer will be able to help you.
Working with a mortgage broker: pros and cons
- Access to various lenders, which means more loan products and opportunities for a competitive interest rate.
- Good for first-time homebuyers who may need more support.
- Better for borrowers who need help finding a smaller lender willing to work with their personal circumstances.
- May be biased based on their affiliations, which means you might not actually be getting the best possible rate.
- Whether you pay for them upfront or the lender folds their commission into your mortgage, a broker fee can cost up to 2.75 percent of your total loan.
Working with a loan officer: pros and cons
- Since everything’s done in-house, they may be able to streamline the mortgage approval process and move things along more quickly.
- Potential access to better internal rates and discounts, especially if the lender is the institution you already bank with.
- Access to one lender only.
- If you’re shopping around on your own, you’ll be dealing with several loan officers at once rather than one mortgage broker that helps liaise.
- If your loan is denied, you’ll have to start the process over again with another loan officer from a different lender.
Choosing between a mortgage broker vs. a loan officer all depends on your goals as a homebuyer. If you’re open to exploring different lenders, a mortgage broker may be a point of contact to consider. If you’ve chosen your lender and are ready to explore your mortgage options, a loan officer can help lead the way. Whether you work with a loan officer or opt to work with a mortgage broker, both of these professionals can help you navigate the homebuying journey with ease.