When buying a house, do I work with a loan officer or mortgage broker?
What’s the difference between working with a direct lender who is a mortgage banker, a bank loan officer, and a mortgage broker?
Applying for a mortgage can be a daunting task especially if you’re a first-time homebuyer. Even those buyers seasoned with several homes purchased over many years don’t actively know the ins and outs as the rules and lending guidelines change so frequently. When financing a home, you have an option to either work with a bank loan officer, a mortgage banker with a direct lender or mortgage broker when becoming pre-approved to purchase and seeking a mortgage.
While all options have the same results – purchasing a new home – there are implications for choosing the right fit and best choice since even though all three do a lot of the same things, how they get “there” is usually very different. In this article, we look at the differences between the three and why you should perhaps choose one mortgage advisor over the other.
What is a mortgage broker?
Mortgage brokers are licensed, independent workers either working for themselves or a mortgage brokerage firm that acts as the middlemen between home buyers and various lenders. Mortgage brokers facilitate things between applicants and lenders, which can be a bank, credit union, finance company, trust company, mortgage company, or even private investors. A mortgage broker analyzes your numbers to determine which lender is best suited to cater to your unique loan needs. He/she presents your application, usually securely online with uploading information through encrypted and secure servers to lending institutions and works with one of them until the loan closes. Once the loan closes, the lender pays the mortgage broker their commission.
Responsibilities of a mortgage broker included but are not limited to:
- Finding and working with lending leaders – mortgage brokers must be constantly on the lookout to find the top area and regional lending institutions to work with. The more they find, the better the options they give to their clients.
- Analyzing the financial history of potential buyers – the financial history of a buyer has a huge implication on the type of mortgage they qualify for or even their ability to get a mortgage. It’s a mortgage broker’s job to carefully and thoroughly analyze the applicant’s financial history in order to know the best mortgage for them and where to get it.
- Marketing their service – in most cases, mortgage brokers have to seek out clients which means they have to come up with marketing strategies to find prospective clients.
- Developing relationships with real estate agents – real estate agents have the inside scoop on who is about to buy a home. As such, mortgage brokers must foster good relationships with realtors in an effort to seek out more clients and keep tabs on the real estate market.
- Representing buyers throughout the application process – a buyer submits their application to the mortgage broker who then negotiates the terms and conditions of the mortgage with the lender on their behalf.
Who is a loan officer?
A loan officer, on the other hand, is an in-house employee who works for a specific lending institution such as a bank or credit union and helps people who come into their institution apply for mortgages but only for that particular institution. They are also known as ‘account executive’ or ‘loan representative’, a loan officer guides mortgage applicants through the whole application process while working with his colleagues to expedite the process. A loan officer’s job is to take intake information and qualify a buyer while their processing staff is tasked with verifying the applicants’ information. The loan officer will decide the best mortgage terms for each applicant that fits his or her institution’s programs. Loan officers are paid by salary or commission (or both).
Responsibilities of loan officers
- Explaining terms and loan options to applicants.
- Keeping agents and clients up-to-date on changes in loan markets.
- Reviewing loans for government compliance.
Who is a non-bank loan officer who works for a mortgage company?
A mortgage banker, also commonly called a loan officer or loan consultant is an individual who is a federally licensed mortgage loan originator and holds various state licenses to lend specifically in each particular state he or she is licensed in. A mortgage banker is also known as a loan officer but is one who works for a direct lender at a non-bank institution. Loan officers who work for mortgage companies fund more loans nationally in the US than bank loan officers or mortgage brokers combined. The non-bank institution can be a large national lender or a small local or regional lender and have in-house control, unique programs and are often more flexible and nimble than a bank loan officer and can make a decision directly without another bank’s approval that a mortgage broker needs to obtain. A mortgage banker is also licensed to broker loans to another bank or institution just like a mortgage broker should the need arise in that the loan officer’s firm may not have every program available in house but can nevertheless fund a loan by brokering the loan to another bank or lender whom he or she corresponds with.
PROS AND CONS
Pros of mortgage brokers
- Mortgage brokers have access to a variety of lending program from a variety of different lending institutions which puts them in a position to get you a loan with more options and choices.
- They are usually more knowledgeable about the overall lending market and not just about one single institution’s programs or loan products.
- If you are having difficulties getting a mortgage, maybe due to low credit scores, recent bankruptcy or foreclosure, a mortgage broker is in a good position to find you a lending company which will approve your application.
- Mortgage brokers offer a one-stop shop.
Cons of mortgage brokers
- They can be more expensive than going directly to a bank loan officer.
- Since they work for commissions, they might persuade you to go with the company which pays a better commission for them and not the one that offers the best deal for you.
- Brokered mortgages usually take longer to close.
Pros of loan officers
- The process of applying for and getting a mortgage through a loan officer is usually faster.
- With a loan officer, you have more peace of mind knowing that you are dealing directly with the lender’s own representative and not a middleman.
Cons of loan officers
- You may not get the lowest rates since you are only dealing with one lender.
- There are fewer mortgage options especially if you have a bad credit history or are self-employed.
- Loan officers may be inexperienced and are a lot less knowledgeable about mortgages than mortgage brokers.
Pros of working with a loan officer who is affiliated and employed by a non-bank direct lender
- Best of both worlds – in house loan programs, faster turn times from start to finish and also the ability to broker to an outside lender should the need arise, leaving nothing to chance with your home loan.
- Greater knowledge and work in tandem with their own in-house underwriting, document and funding staff for a higher level of efficiency and expeditiousness.
- Similar cost structure to a bank loan officer but with more flexibility and fewer constraints.
Cons of working with a non-bank direct lender
This author can’t think of any! It’s truly the best of both worlds – a trusted advisor who can offer in-house programs such as low down payment first time buyer programs, Federal government approved programs such as FHA or VA loan which are income and employment-based but with a wider latitude of qualifying options, larger loan amounts with lower down payment options and the ability to broker a loan if needed to another institution so no stone is ever left unturned. And, generally, a mortgage company only offers home loans so unlike a bank, their livelihood depends on doing things right, creating happy clients and having a high level of integrity, support, and honesty.
Other posts we like
If you like this article here are a few other informative blog posts we like:
10 Questions to Ask a Mortgage Lender | This article shares 10 questions every buyer should ask their lender to ensure they get the best mortgage.
Reasons Why a Buyer may Fail to Obtain a Mortgage | When buyers are obtaining a loan for their new home, it is imperative that they don’t make mistakes which can prevent them from obtaining a mortgage. Mistakes may include a poor credit score, making unnecessary purchases, obtaining a new loan and more.
Questions to ask a lender when buying a house – When you are going to be getting a mortgage to purchase a home it is vital that you ask the lender all the right questions. Take a look at the excellent resource found at Maximum Real Estate Exposure that explains the things you should always ask your lender.
Home Loans for First-Time Buyers – This article outlines some of the home loan options for first-time buyers.
About the author: How to get the best loan for a house
The Shelhamer Real Estate Group is a real estate brokerage working with home buyers and sellers on the Eastside of Los Angeles including, Highland Park, El Sereno, Mount Washington, South Pasadena, Glassell Park, Eagle Rock, Echo Park, Silverlake, Los Feliz, and the Hollywood Hills East.
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This is not a commitment to lend. Prices, guidelines, and minimum requirements are subject to change without notice. Some products may not be available in all states. Subject to review of credit and/or collateral; not all applicants will qualify for financing. It is important to make an informed decision when selecting and using a loan product; make sure to compare loan types when making a financing decision. Any materials were not provided by HUD or FHA. It has not been approved by FHA or any Government Agency. A preapproval is not a loan approval, rate lock, guarantee or commitment to lend. An underwriter must review and approve a complete loan application after you are preapproved in order to obtain financing.