What's the Difference Between a Mortgage Broker and a Loan Officer?

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Mortgage brokers are licensed third parties who are paid to help people find mortgage lenders and make it through the application process. Mortgage loan officers (MLOs) are direct employees of those lenders whose job is to guide customers in selecting one of the lenders' own mortgage options. If you prefer to do your own mortgage shopping, you should speak to loan officers at multiple lenders. However, borrowers with bad credit might find that a broker's experience will help them find the most affordable rates.

Mortgage Brokers vs. Loan Officers

The main difference between MLOs and brokers lies in who they work for. Mortgage brokers work as middlemen connecting borrowers to lenders while MLOs are paid agents of the lenders that employ them.

Mortgage BrokerMortgage Loan Officer (MLO)
  • handles most of your application paperwork
  • canvasses many lenders to find the best rate
  • may have privileged access to more/better lender offers
  • no commission involved in application and closing fees
  • direct dealing with lender allows faster processing of documents
  • charges a closing commission based on final loan amount
  • may take longer to process documents as a third party
  • only offers mortgage options from one lender
  • requires more effort to shop lenders and manage application documents

MLOs are hired by a bank or other mortgage lender to conduct business with customers, market the lender's mortgage products and process loan applications. Mortgage brokers, on the other hand, receive consumer information from a client and shop for rate estimates on that client's behalf. While MLOs are compensated by their lender, brokers receive a commission based on the final amount of the loan. This commission is usually paid by the borrower. Mortgage lenders will cover a broker's fee in rare cases, but federal law prohibits brokers from collecting fees from both the lender and the borrower on any one mortgage loan.

As mortgage professionals, brokers often enjoy established connections to the lenders they work with most frequently. This often translates into exclusive access to broker-only interest rates, which help the broker find the best mortgage rates for their clients as compensation for introducing the lender to new customers. However, a close relationship between brokers and lenders also puts borrowers at risk of being pushed into accepting terms that aren't necessarily in their best interest —one of the many factors that contributed to the subprime mortgage crisis in 2008-2009.

What Fees Do Mortgage Brokers and Mortgage Lenders Charge?

In essence, picking between a mortgage broker and a loan officer is about deciding whether it's worth paying someone to manage most of the mortgage process for you. Generally, mortgage broker fees amount to 0.5% to 1.0% of the final loan amount. For instance, a mortgage of $200,000 would probably cost you between $1,000 and $2,000 in commissions to your broker.

It's helpful to think about the cost of a broker in the context of the more typical closing fees on a mortgage. Closing costs are widely cited as 2% to 5% of your purchase price, so a broker fee of 0.5% or 1.0% is a significant bump in your upfront costs. However, the exact figure for your own mortgage will depend on your own decisions. For instance, you might choose to take on lender credits, lowering your closing costs in exchange for a higher mortgage rate. This would be one option to make up for the added expense of a mortgage broker commission.

If you're willing to manage your own mortgage shopping and applications, it may be cheapest to speak with different MLOs without a broker. However, a mortgage broker's experience and professional networks may help if you don't know where to begin your search —or if your personal credit score makes it harder than usual to get approved for a mortgage. Since brokers obtain multiple lender quotes more quickly than an individual consumer, they can also help you save time and access a wider range of options than you would working by yourself.

Important Questions You Should Ask a Mortgage Professional

Because typical consumers only shop for mortgages a few times in their lives, many expect professionals like mortgage brokers and loan officers to guide and inform them about mortgage rates and estimates. While both MLOs and brokers will provide that assistance, it's still important to have a firm and independent understanding of your position as the borrower. Asking the proper questions of your broker or loan officer can help ensure that you're on the right track to obtaining financing that's right for you.

Any initial conversation with a broker or loan officer should include specifics about what you want in a mortgage —as well as what you're bringing to the table in terms of down payment, debt-to-income ratio and credit score. The less you leave up to others, the more control you have over the final result. Providing clear information about the rate, term and fees you expect helps brokers and MLOs locate the best offers available within those parameters. For example, you should consider whether you need a good fixed rate for the long term, or hope to secure a low adjustable rate mortgage that you can refinance in a few years.

Most importantly, remember that the law requires mortgage lenders to provide a detailed, on-paper estimate for a mortgage loan within three days of a borrower's request. This is the main tool for consumers to get at an apples-to-apples comparison of the different options they have. Mortgage brokers will also collect estimates from lenders in the same way, providing their clients with a collection of various lenders that they have worked with before.

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