Lenders vs. Brokers: What's the Difference?

If you’ve ever shopped for a home, you know that the terminology can get confusing pretty quickly. Specifically, the words broker and lender tend to trip people up. They’re never sure if a mortgage broker who’s lending them the money or a bank.

Let’s break it down!

Who are Brokers

Mortgage brokers are like the Jiminy cricket of mortgages. They’re supposed to help you find the best rates that are currently available on the market, so that you can save money.

To do this, mortgage brokers shop different lenders once you’ve been pre-approved. That means that brokers will bring you several rate offers from different lenders, or banks, who are willing to give you certain mortgage interest rates depending on your FICO score and their disposition.

In this sense, you can think of brokers as matchmakers. While they don’t lend you the money for your loan, they do originate loans for you. That means that they pre-approve you for a certain amount, say $350,000 for a single family home, and then look to a lender (aka a bank), to fund the loan and offer a low interest rate.

Who are Lenders

Mortgage brokers are in charge of originating loans and pre-approving clients to make sure that they can afford homes. Lenders do all of the funding once their underwriter has checked out the person’s financial situation.

Lenders present themselves as viable loan funding options by offering a competitive interest rate. Once this is done and the client accepts the rate, the bank goes about communicating with the mortgage broker’s processor through their underwriter, who is essentially a loan verifier.

Terms Are Interchangeable

While the distinctions are pretty clear, you’ll still hear the words broker and lender thrown around when talking about different roles in the mortgage industry. For example, you might hear the term real estate broker. This is just another way of saying real estate agent.

However, be prepared to interpret, as people still mix up lenders and brokers constantly. The best thing I can suggest is to get familiar with the mortgage process, and who does what. Even then, make sure to ask for clarification if you feel that the word lender or broker is being used in a way that sounds confusing.