Wading into the home buying process can be confusing, as more options exist now than ever. The FHA has recently added the ability to convert to a 40-year loan in certain circumstances, and as members of the active duty military or veteran community, we also have access to the military mortgage loan (VA loan).
On top of that, if you pay attention to financial or real estate news, the different pundits giving conflicting guidance can be overwhelming. Half the pundits tell you to be on the lookout for a market implosion, while the other half say that we’re moving into the next bull market.
Some real estate influencers say not to bother in the real estate industry right now, while others tell you that it’s a better time than ever for buying a new home.
Who do you believe?
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The difference between military members and the typical American citizen is that Uncle Sam doesn’t care about mortgage rates or what the financial pundits are saying. When your orders are cut for a change of duty station, it’s time to move.
Some are okay with renting every time they have to change stations, but the rental market has become extremely crowded due to the rising interest rates and many people either being priced out of home buying or choosing to wait until mortgage rates begin to drop.
For those who have already made the transition from renting to owning a home, they may not want to go back to the life of a renter. There are tax implications for selling a property without investing the proceeds directly into a new property, and the idea of paying down a landlord’s mortgage to build their own wealth with rent rather than building your own is a bridge too far for some.
You'll find businesses and professionals whose job is to help you wade through the process of finding the right mortgage to buy a new home, but there are distinctions and differences between them. Making sure to do your due diligence to find the best rates and the right person to help with your mortgage can make a huge difference in your military home buying process.
To help you understand each of these people and businesses and how they can help you with buying a house in the military, this post will serve to answer the question: What's the difference between working with a mortgage broker, lender, and loan officer?
What Is a Mortgage Broker?
A mortgage broker is a licensed professional who doesn’t work for one specific lender but has relationships with dozens to perhaps hundreds of them. The job of a mortgage broker is to shop around the various lenders to find the best deal on a mortgage for you, based on your financial situation and what you are looking for.
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Pros and Cons of Using a Mortgage Broker
You can think of a mortgage broker as a free agent in the home buying process because they don’t work directly for any one lender. This means that they can shop around for different types of lenders and mortgages to help find the right deal for you. This can be helpful because direct lenders don’t always work with non-traditional loans, like the VA loan or loans with low down payments.
There can be downsides to working with a mortgage broker, however. There are situations in which lenders offer incentives to mortgage brokers for bringing them new loans, which could mean that a broker might be tempted to bring you a deal that may not be the best. Another issue is that brokers receive a commission for obtaining your application and loan (called an origination fee, which is typically 1-2% of the loan). They may charge you, the lender, or both for that commission, so be clear about the payment structure and negotiate whenever possible.
Do your research before deciding to work with a mortgage broker to ensure that they haven’t had any complaints lodged against them by looking at online review forums, the Better Business Bureau (BBB), and the Consumer Financial Protection Bureau (CFPB).
What Are the Different Types of Lenders?
Some people believe that the only place to get a home loan is through the bank that they use, but there are many different types of lenders who offer retail mortgages today.
Mortgage Bankers
True to the name, mortgage bankers specialize in the business of mortgages. They can operate either as a retail or a direct lender, both of which will be described below. Most mortgages in the US go through mortgage bankers of one type or the other. These mortgage banks and bankers will loan their own capital to borrowers and opt to collect the repayment of those loans with either interest (servicing) or selling the loans on the secondary market.
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Retail Lenders
Retail lenders offer many different types of financial products, not just mortgages. These can be banks or credit unions that accept consumer deposits, offer auto loans, or provide personal, business loans, or other types of financial products. Retail lenders offer mortgages directly to consumers and will often have stricter underwriting requirements than other types of mortgage lenders.
Direct Lenders
Direct lenders will originate their loans, either using their own capital or borrowing it from somewhere else. These types of mortgage bankers are different from retail lenders in that they specialize in mortgages. Due to this focus on providing mortgages, direct lenders may have less stringent qualification requirements than retail lenders. However, like retail lenders, these mortgage bankers will only offer their own products.
If you opt to use a retail or direct lender for your home buying process, it is wise to shop around and apply to multiple lenders to find the best deal for you.
Portfolio Lenders
Portfolio lenders are smaller, often privately funded community banks that choose to keep the mortgages that they write rather than sell them on the secondary market. It may be more expensive to use a portfolio lender over a traditional one, but there are also distinct advantages.
By keeping their mortgages in-house, portfolio lenders don’t have to abide by the strict underwriting requirements that traditional lenders do. These lenders can be useful for jumbo or investment home mortgages, and offer more flexibility in many ways.
Hard Money Lenders
Often seen as a “loan of last resort,” a hard money loan uses the property as collateral. Hard money lenders are often investors or companies rather than mortgage bankers, and the approval process can be far quicker than traditional mortgage approval. The interest rates on these loans can be even higher than subprime mortgages, but these types of loans are most often used in real estate transactions and by property flippers who plan to sell their property quickly.
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What Is a Loan Officer?
A loan officer works directly for one lending institution and can be paid through salary, commission, or a combination. They can only offer you a mortgage through their employer, but you don’t have to worry about any additional fees being tacked on as with a mortgage broker. A loan officer doesn’t always have to be licensed, but they are often extremely knowledgeable about the mortgage process and requirements for the institution that they represent.
Pros and Cons of Using a Loan Officer
One of the benefits of working with a loan officer is that they know the requirements and processes used by their institution extremely well. They are often paid a salary so you don’t have to worry about any hidden fees, and, if approved, the process can be much faster than working through a mortgage broker.
The downside of working with a loan officer is that they can only offer products through their employer. Not all lending institutions work with VA loans, so a loan officer may not be able to help you if that is what you prefer to use.
If you choose to work with a loan officer instead of a mortgage broker, it is suggested that you apply with at least several to try to find which can offer the best deal for you.
Which Is Best for Me? A Loan Officer or Mortgage Broker?
To provide a quick guide to the differences between working with a loan officer or mortgage broker in your home buying process, this table outlines the basic differences between the two:
|
Position |
Mortgage Broker |
Loan Officer |
|
Who pays them? |
You, the lender, or both |
Their employer |
|
Length of process |
Not a lot of flexibility |
May be more streamlined |
|
Lenders they work with |
Many different lenders |
Only their employer |
|
Rate flexibility |
Can search for the best rates |
May offer discounts |
|
Pay structure |
Commission & origination fees |
Salary, sometimes commission, or both |
|
Are they licensed? |
Yes |
Not always |
Final Words
A home is often the largest and longest-term investment for many Americans. Buying a house in the military can be substantially different than it is for civilians, given our requirement to move often and access to military mortgage loans.
There are many steps and people involved in home buying, and it’s imperative that you find a team of professionals who will be on your side in both your search and mortgage process. The most important advice that we can offer for buying a house in the military is to do your due diligence (research) and to always ask for multiple offers.
There is no rule or law that you can only apply with one lender, loan officer, or broker. Now that you know the difference between these jobs, we hope that it makes your home buying search easier!
About the author: Robert is a former Army Special Forces medic and a multiple-tour veteran of OIF and OEF. He is the recipient of a Purple Heart, Bronze Star, and ARCOM among many other awards. Robert is an MBA who has bought properties in multiple states and has worked with many property managers and realtors, giving him first-hand experience in buying and selling real estate.
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