By Aniket Bose. Edited By Arjun Chandrasekar.
A mortgage broker is an agent that brings mortgage lenders and people seeking a mortgage together, but they do not use any of their funds to originate the mortgage. They also gather the necessary paperwork from the borrower and pass it on to the lender for them to give their approval. Once the mortgage has been issued and approved by the lender, the mortgage broker earns a commission from either the borrower or lender, or sometimes even both. A mortgage banker is an individual that originates mortgages. They use their own funds or obtain funds from a warehouse lender, for funding mortgages.
A mortgage broker acts as a middleman between lenders and borrowers, mostly in the real estate market. Regardless of whether the borrower is buying a new house or wishes to refinance their house, the mortgage broker goes out and arranges possible loan options from multiple lenders for the borrower to choose from. The mortgage broker also has to arrange for financial information like assets, income, and documentation of employment for assessing the borrower’s ability to secure financing, which is then passed on to potential lenders. The mortgage broker also determines a reasonable loan amount for the lender to give the borrower, known as, loan-to-value (LTV) ratio. The borrower will tell the mortgage broker their preferred loan type and the broker will send that type of loan to possible lenders for their approval. The broker is in constant communication with both the borrower and lender until the transaction is fully processed. The commission that the mortgage broker gets from assisting the lender to gain a client and the borrower gaining the necessary funds is known as an “origin fee” which comes from the lender as a reward for the broker’s assistance. An important thing to note is that the mortgage broker only gets paid when the loan transaction is completed, or else they don’t get paid anything and no “origin fee” as well.
A mortgage banker will usually work in the loan department at a financial institution like a bank or credit union. They directly work with realtors and individuals that seek loans throughout the mortgage process. They also act as an advisor to the borrowers by assisting them in choosing the best loan options from the financial institution for the advisor. Since mortgage bankers work at financial institutions, they can only offer clients loans that are offered at the institution. Mortgage bankers are paid directly by their financial institutions through a typical salary. They don’t male a commission on the loans they help in transacting as mortgage brokers do. Larger mortgage bankers service mortgages outright, whereas smaller mortgage bankers tend to service property rights. Mortgage bankers also have the ability to approve a mortgage for a lender, which mortgage brokers are not capable of doing.
A mortgage broker and banker are similar in a way since they can both help someone get a home loan. Both a mortgage broker and banker are classified as “loan officers” by the federal Bureau of Labor Statistics. The biggest difference between a mortgage banker and a mortgage broker is that mortgage bankers are able to close mortgages under their own name by using their own funds, whereas, mortgage brokers facilitate originations for other financial institutions and collect a commission fee. Mortgage brokers and bankers operate in different manners but they share the main goal of helping someone get a home loan.