Mortgage Broker vs. Lender

What is a mortgage broker?

A mortgage broker is a person who works with a variety of mortgage lenders. Brokers act as a middleman between the lender and the borrower, helping the borrower find the best loan for their needs and efficiently applying for the mortgage. Brokers advise you on what documents to submit and assist you in collecting and submitting them to the lender.

Expect to pay 1% to 2% of the loan amount if you go with a broker.

Mortgage brokers don’t lend money or approve loans; rather, they act as agents for borrowers. This can be especially useful for those with nontraditional income, lower credit scores or other unique circumstances that complicate the loan application process.

Mortgage brokers charge a fee for their services, typically 1% or 2% of the loan amount. This percentage can be paid upfront or added to the amount of your loan.

How does a mortgage broker work?

Mortgage brokers begin their work by gathering the personal information of their clients, including financial details and goals, and matching them with a lender that best meets the client's requirements. Brokers may ask personal questions about retirement plans or when you’d like to have the home paid off to better tailor their recommendations.

The broker then works as a liaison between the lender and the client to make the process as easy as possible, offering their expertise along the way.

Carlos Scarpero, a mortgage broker in Dayton, Ohio, explained: “The mortgage broker prequalifies the prospective home buyer, collects documents and determines which program and which lender best suits the borrower's needs. The mortgage broker also sends the documents to the lender's underwriter and gets updated documents when requested.”

What is a mortgage lender?

A mortgage lender loans funds to borrowers to buy real estate. It also processes and approves mortgage applications. This can be a bank, credit union or online lender. Lenders vary in their criteria for approving applicants and the speed at which they process applications.

Lenders evaluate applications based on factors such as your credit score, debt-to-income ratio and down payment amount to determine whether to approve the loan and what terms to offer. Once approved, the lender provides the funds for the home purchase, using the property as collateral.

The advantages of working directly with the lender are potential cost savings and being able to speak directly to the lender without a middleman. You should consider working directly with a lender if you’re familiar with the mortgage process, have time to apply with multiple companies and feel confident comparing loan terms, rates and fees on your own.

The process of working directly with a lender

When you work directly with the lender, you’ll submit your application and documents to the lender, rather than to your mortgage broker. This information will then go to underwriting, where the lender will determine if you qualify and, if so, what the terms will be. If you want to compare lenders, you’ll need to do this yourself by getting preapproved with several companies and comparing the offers.

When the loan is approved, you’ll work with the lender through closing. After the funds have been dispersed, the lender may continue to service the loan, but many will sell the loan to a different institution for servicing.

» COMPARE: Best mortgage lenders

Differences between mortgage brokers and lenders

The main difference between mortgage brokers and mortgage lenders is that when you use a mortgage broker, your application is shopped around to several lenders and you’re presented the best deal for your particular situation. However, when you work directly with a mortgage lender, you’re applying with a specific lender; if you want to compare offers, you'll need to apply at several lenders.

Mortgage brokers don’t approve applications or lend funds. Instead, they act as intermediaries between borrowers and lenders and earn a fee for their services. That fee is typically paid by either the lender or the borrower and may be a flat amount or a percentage of the loan. The broker fee is separate from any fees charged by the lender.

» MORE: Mortgage lender vs. bank

Benefits of working with a broker

The benefits of working with a broker come down to convenience and personalized support. If you’re not familiar with the mortgage process and are uncomfortable shopping around for the best rates and terms, a mortgage broker can ensure you get the best loan for your needs.

Scarpero quoted a 2023 study from Polygon Research showing that borrowers received better loan terms when they used a broker, leading to savings of over $10,000 over the life of the loan.

Working with a broker can also create a smoother experience for borrowers since they have someone on their side who can present multiple offers and answer questions about them.

Scarpero told us, "Mortgage brokers also can look at everyone's lender overlays to determine the best fit for the deal. This gives us a huge advantage in underserved communities."

He went on to say, "Brokers can simplify the loan process by matching the deal with the lender that is best suited for that scenario. We know everyone's strengths and weaknesses."

Pros and cons of mortgage brokers vs. lenders

Both brokers and lenders have advantages, but the trade-offs come down to cost, convenience and control.

Brokers can simplify the process and help match you with a lender, but they charge a fee and act as a middleman. Lenders offer direct communication and no broker fees, but you’ll need to do the rate shopping yourself.

Here’s a side-by-side look at how they compare:

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