A mortgage banker and a mortgage broker play critical roles in the home buying process when it comes to mortgages. While the two roles are similar in many ways, they have some key differences when determining mortgage banker vs. mortgage broker. It may be confusing for some people to distinguish them as both can help potential home buyers to obtain a home loan.
The difference between a mortgage broker and a mortgage banker is that a mortgage broker usually facilitates originations for other institutions. But the mortgage broker is responsible for representing multiple financial institutions and closes mortgages using their funds and their own names.
This article thoroughly explains the major differences between the two. With this guide, a homebuyer can figure out which of the two works best for them. Continue reading to understand everything better.
Difference Between a Mortgage Broker and a Mortgage Banker
As I was looking for steps on how to get a mortgage loan, I had two options: help from a mortgage broker or a mortgage banker.
Both of which offer assistance when it comes to preparing the right mortgage. However, they don’t work the same, and I had to understand the difference before making my decision.
Mortgage bankers work for a lending institution such as a bank etc. That’s where the loan is obtained. Mortgage brokers act as an intermediary for different financial institutions. They make arrangements for the best mortgages between lenders and borrowers.
Mortgage Broker
Definition. As defined by the National Association of Mortgage Brokers, a mortgage broker is a real estate financing professional that’s independent and mainly specializes in the origination of mortgages.
Level of reliability. Has a level of reliability that’s relatively lower because the mortgage broker works independently to find the best mortgage opportunity.
Level of flexibility. A mortgage broker fully understands borrower needs and find the loan option that will suit them best. The loan options are provided by different lending institutions that offer a lot more flexibility concerning payment, terms, interest rate, etc.
How do they earn? A mortgage broker will earn a fee through their commission or, in some cases, a flat fee, usually a percentage of the loan’s value.
Mortgage Banker
Definition. The National Association of Mortgage Brokers defines a mortgage banker as an individual, corporation, or firm whose service originates or sells loans secured by mortgages. A mortgage banker is also referred to as a loan officer.
Level of reliability. Offers a higher level of reliability because a mortgage banker only works with a single lending institution.
Level of flexibility. A mortgage banker (or loan officer) is usually employed by a bank, a savings and loan association, or a credit union. The level of flexibility is not the same as what a mortgage broker offers. They help borrowers find the best loan option for them; however, it’s an option only provided by that particular institution.
How do they earn? A mortgage banker usually earns through a salary offered by the lending institution they work for; other sources of income include performance-based incentives or bonuses.
Let’s have a look at some of the key differences between the two in greater detail for an in-depth understanding:
What Is a Mortgage Broker?
One of the most arduous tasks for buying a home is shopping for a mortgage.
A mortgage broker has a professional license to bring home buyers and lenders together for a fee, and they have to follow certain financial regulations.
The broker identifies a loan that fully matches a borrower’s needs and afterward compares all the rates and the terms so that a homebuyer doesn’t have to go through the trouble.
They can offer mortgage products from many lenders and give access to a broader range of products than a mortgage banker who’s limited to their institution’s offerings.
A mortgage broker guided me through the application and underwriting processes through buying a house while in the military.
This process is usually done by:
- Compiling the application materials
- Checking a borrower’s credit history
- Verifying information on income and employment
Those reasons make a mortgage broker more beneficial since they offer clients greater access to a broader array of lenders.
That includes lesser-known institutions but offers terms that are more favorable than those of well-known institutions.
What Is a Mortgage Banker?
A mortgage banker is a company, individual, or institution responsible for originating mortgages. They usually use either their own funds or funds they borrow from warehouse lenders to fund home loans.
A mortgage banker can either sell the mortgage to an investor or retain the mortgage portfolio after a mortgage is originated.
Additionally, a mortgage banker may either service the mortgage or sell the rights to a different financial institution when the mortgage originates.
Their primary business is to earn the fees associated with the origination of a mortgage. Most of them don’t usually retain the mortgage in a portfolio.
How Does a Mortgage Broker Work?
A mortgage broker can help homebuyers who don’t have banking relationships or can’t find a lender who offers adequate rates.
Mortgage brokers work with multiple lenders and help homebuyers obtain the best loans and rates from various loan programs. Borrowers can save a lot of time with the services of a mortgage broker. They won’t have to contact different lenders individually, and the broker will help with understanding the various loan offers.
A homebuyer simply needs to work with the broker who’ll help them determine the home loan they’re likely to qualify for and also deal with all the legwork.
Brokers compile all the necessary documentation for homebuyers and guide them through both the application and underwriting processes.
Upon closing, the borrower fee or lender commission earned by the broker is usually between 0.50%-2.75% of the total loan amount. That depends on the broker’s fee structure or whether the borrower or mortgage lender is paying them.
If wondering, can you get a mortgage loan from a foreign bank? The answer is yes. A mortgage broker would be more likely to help you with this than a mortgage banker.
How Does a Mortgage Banker Work?
A mortgage banker typically works in the loan department of a financial institution, savings and loan association, or a credit union.
Realtors and individuals who are seeking loans work with the mortgage banker throughout the whole mortgage process, starting from the following:
- Evaluation of the property
- Collection of financial information
- Securing the loan
The above tasks include knowledge of a wide variety of tasks. These individuals follow up on home appraisal checklists and preparation, 60 days worth of financial transaction history, and costs needed to close their mortgage.
Another role the mortgage banker plays is that of an advisor to the borrowers. They offer assistance with the loan application by helping the applicants choose between the different loan options available in the institution.
The loans are closed in the mortgage banker’s name using an institution’s funds or their own. They work for an institution, which means they can only make loans from there.
The institution pays them mostly through salaries and sometimes through performance-based bonuses.
Their loyalties lie with their institution, ensuring the loans are fully secured. They also have to be sure the borrowers qualify to make the payments each month.
Smaller mortgage bankers tend to mainly sell servicing rights, while larger mortgage bankers primarily service mortgages.
Because they work for the lending institution, a lender can have their mortgage approved by a mortgage banker.
The institution provides money for the mortgage. That means the mortgage banker can determine whether a loan application is approved or if it’s rejected.
That determination happens when a subjective decision or an exception is required.
Mortgage Banker vs. Mortgage Broker
After understanding the difference between mortgage banker vs. mortgage broker, one might end up being much better than the other. Nonetheless, all that depends on an individual’s circumstances. An applicant with a higher credit score might make a different decision than one with a lower score. Or, if you are trying to buy a house with Chapter 13 bankruptcy, you will have different lending requirements, and both individuals will help in different ways.
When it comes to rates, getting quotes from both sources really helps.
In general, if the loan is a straightforward transaction and the borrower’s income, credit, and assets are strong, they might save more time with a bank.
If there are any challenges with the application, a mortgage broker knows of flexible lenders who might be helpful.
For instance, a homebuyer might save both time and money with a mortgage banker if their loan is straightforward, but they won’t disclose how much they make on the loan. That means they may end up paying more than they should if they don’t shop aggressively.
Key Differences
Although both a mortgage banker and broker help procure the best loans for homebuyers, the main difference lies in the fact that a mortgage banker represents either a mortgage bank or financial institution.
The mortgage banks and institutions lend money, but a broker isn’t bound to any of those. They focus on the individual needs of a borrower and use that information to shop for the most suitable mortgages.
The following fundamental differences helped me make a choice and can help any other borrower make the right choice while looking for a home loan. I mentioned them briefly earlier, but here these points are explained in-depth.
Roles and Duties
They both help a borrower with home loans. They both offer advice on savings accounts, direct lenders, and how to save money for a house fast. A mortgage broker typically acts as an intermediary between the lending financial institution and the borrower.
I was presented with mortgage loan options from different lenders to compare and evaluate my financial and employment information. The broker presents the mortgage options, and then they complete the paperwork for the loan.
He also answered my question: can passive income be used to qualify for a mortgage.
Their day-to-day responsibilities include:
- Creating professional relationships with mortgage lenders so that they can recommend them to potential clients
- Making applications for mortgage loans with lenders who are established on behalf of borrowers
- Putting together documents, credit history, and employment information for buyers
- Comparing fees such as closing costs and interest rates from different lenders
- Advising clients on all options available and clearly explaining repayment details
- Completing all the paperwork
The mortgage banker is typically responsible for facilitating loan originations for financial institutions and mortgage banks they work for. The banker helps a borrower apply for mortgages as well as refinances. I was professionally navigated through a variety of mortgage products.
They aren’t as independent as brokers. They’re bound to a specific lender or financial institution.
Some of the duties of a mortgage banker include:
- Assisting borrowers to determine loans that suit their needs and mortgage products that are most likely to be approved
- Negotiate the terms and conditions of home loans with borrowers
- Collecting all necessary financial information and credit reports for loan applicants
Level of Flexibility
In general, the mortgage broker offered me more flexibility than the mortgage banker. Mortgage brokers are more flexible since they can fully comprehend a borrower’s needs and then find the most reliable loan options from a variety of financial institutions.
There’s a chance to compare different rates and find the best one when working with a mortgage broker because they know where to find them.
Mortgage bankers might not be the easiest option for any homebuyer. They’re less flexible because they only can provide financing options specified by the institution they work for.
A bank or financial institution a mortgage banker works for might have offers that often aren’t the best rates. Most banks make offers that often don’t reflect their best rates, and when a borrower doesn’t have an alternative, they’ll think that’s a “good rate.”
Level of Reliability
When it comes to reliability from a borrower’s perspective, the mortgage banker offers more reliability because a banker works for a specific company that’s well-known and mainly specializes in mortgage loans.
They also have more knowledge of the different loan opportunities. The company pays the mortgage banker their salary. That increases the likelihood that they’ll work in the best interest of both the company and the borrower.
A mortgage broker doesn’t work for an institution; they’re independent. This means that the level of reliability might be much lower. Completely trusting them can be a little challenging since they’re working for their own best interest.
Compensation Structure
Another key difference is in the compensation structure of a mortgage banker and a mortgage broker.
Mortgage bankers are paid through a fixed salary and performance-based bonuses, and other associated fees. Some of the ways mortgage bankers can make money include origination fees, mortgage-backed securities, discount points, loan servicing, and closing costs.
- The bankers use their own funds to extend mortgages, and they usually charge an origination fee of around 0.5% to 1% of the original loan value. The fee does increase the overall interest rate that’s paid (annual percentage rate). That’s the mortgage interest rate and other charges.
- Another way they earn is through yield spread premium. They use funds from depositors or banks with lower interest to fund loans. The yield spread premium is noted as the difference between the interest rate a borrower is charged and the rate the banker pays for replacing all the borrowed money.
- A discount point is part of the loan that may be due at closing; it helps buy down the mortgage interest. From one discount point, 1% of the loan amount is achieved, and it might reduce the loan amount by 0.125% to 0.25%.
- Apart from the origination fee, other fees such as the underwriting fee, processing fee, loan lock fee, and an application fee are charged during closing by mortgage bankers.
On the other hand, a mortgage broker has to keep the borrower happy throughout the home buying process because it’s in their best interest.
- A mortgage broker works for their commission (finder’s fee). Sometimes the commission may be on a flat-fee basis based on the percentage of the mortgage.
- The commissions vary depending on the lender the broker is working with. They typically range between 0.5% and 1.2% of the whole mortgage amount.
- The exact percentage they earn varies. It depends on the type of mortgage a homebuyer chooses and the length of the term.
- The lender directly pays the broker’s commission, but the borrower doesn’t receive a bill. The broker is also mainly on a split with a brokerage house.
- The split mainly depends on what the broker has negotiated with the brokerage. Their experience level also plays a significant role.
Related Questions and FAQs:
Do mortgage brokers help mortgage borrowers more than a local bank?
Mortgage borrowers would benefit more from mortgage brokers because mortgage brokers know which lender would offer the best mortgage loans, whereas banks only work with local borrowers.
Are there any state laws on mortgage brokers vs. mortgage bankers?
There’s not much of a difference between mortgage brokers and mortgage bankers regarding state laws because both work with the same issues. Most mortgage lenders follow federal laws such as Truth-in-Lending (TILA), Equal Credit Opportunity Act, and Real Estate Settlement Procedures Act (RESPA).
Should I consider a credit union for loan programs?
You can consider a credit union for mortgage loan programs since they sell loans and may have lower mortgage rates.
Wrap Up On Mortgage Brokers vs. Mortgage Bankers
Careful consideration is required when choosing a mortgage banker vs. mortgage broker for a home loan. One might consider the services of a mortgage broker since they’re more flexible in comparing loan options. A mortgage banker also has benefits. They might offer outstanding reliability. That’s achieved through each aspect of the loan process and loan packaging to give the best services possible.
Either way, understanding the difference between a mortgage broker and a mortgage banker will help homebuyers decide which financial professional will be the best fit for their specific needs and circumstances.
