What is the difference between a mortgage broker and a mortgage lender?

A mortgage lender is a financial institution that makes direct loans, while a mortgage broker does not lend money but finds different lenders or mortgage loans for borrowers. Borrowers who use a broker pay a loan-specific fee for that service. Some financial institutions operate as both lenders and brokers, so consumers should ask whether a broker is involved in their transaction.

A mortgage broker directly or indirectly solicits, processes, places, or negotiates mortgage loans for a borrower without lending its own funds; in Alabama, brokers are licensed under the Mortgage Brokers Licensing Act (Code of Ala. Title 5, Chapter 25). A mortgage lender makes the loans itself, and lending activity is licensed separately in Alabama under the Consumer Credit Act. The State Banking Department administers both company licenses, typically through NMLS.

A mortgage broker arranges loans between borrowers and lenders for compensation, while a mortgage lender makes loans directly. California licensing reflects the difference: under the California Financing Law, a company that makes residential mortgage loans must maintain at least $250,000 in net worth, while a broker that arranges but does not make residential loans needs $50,000. Residential Mortgage Lending Act licensees make and service residential mortgage loans.

A mortgage lender uses its own funds to make mortgage loans, while a mortgage broker is an intermediary who arranges loans from lenders without lending directly. Connecticut reflects the difference in its requirements: lenders need $250,000 of tangible net worth and a surety bond of at least $100,000, while brokers need $50,000 and a bond of at least $50,000. A correspondent lender sits in between, funding loans temporarily before selling them.

A mortgage broker conducts loan origination activities through one or more licensed loan originators and works with borrowers without lending its own funds. A mortgage lender makes mortgage loans, which means closing loans in its own name and advancing funds, and may service loans for others. Florida requires lenders to document net worth of at least $63,000, or $250,000 with a servicing endorsement, through audited financials; mortgage brokers face no net worth requirement.

A mortgage broker/processor in Georgia solicits, processes, places, or negotiates mortgage loans for others but does not fund them, while a mortgage lender makes the loans itself. A broker that uses warehouse lines is treated as a lender and must obtain the lender license. The licenses are separate, with different fees: the broker/processor company license costs $650 for a new application and the lender license costs $1,150, plus NMLS fees.

A mortgage broker solicits, processes, places, and negotiates mortgage loans for others but cannot make loans; New York brokers must place loans with licensed mortgage bankers or exempt organizations such as banks. A mortgage lender, licensed in New York as a mortgage banker, advances or commits to advance the loan funds itself. Licensed mortgage bankers may also function as mortgage brokers, but a broker cannot extend credit to borrowers or originate loans in a table-funded transaction.

In South Carolina, a mortgage lender is a company licensed by the State Board of Financial Institutions that makes, services, or processes mortgage loans, while a mortgage broker is licensed by the Department of Consumer Affairs and solicits and negotiates loans on a borrower's behalf. The two operate under separate statutes: Title 37, Chapter 22 governs lenders, and Title 40, Chapter 58 governs brokers. Loan originators employed by a lender apply through the Board of Financial Institutions, and those working for a broker apply through the Department of Consumer Affairs.

In Tennessee, mortgage lenders and mortgage loan brokers hold separate company licenses under the Tennessee Residential Lending, Brokerage and Servicing Act. The two also differ in their surety bond obligations: a mortgage loan broker posts a bond of $45,000 to $135,000, while a mortgage lender posts $100,000 to $300,000, with the exact amount set by the prior year's Tennessee residential loan volume.

A mortgage broker arranges loans between borrowers and multiple lenders, while a lender funds the loans it makes. In Washington, the Department of Financial Institutions licenses both company types under different statutes: brokers fall under the Mortgage Broker Practices Act, and lenders fall under the Consumer Loan Act, each with its own fees and bond requirements.

In Wisconsin licensing terms, the lender side is the mortgage banker, who may originate, sell, and service residential mortgage loans and provide escrow services. A mortgage broker instead assists borrowers in obtaining loans for compensation without making an underwriting decision or closing loans, which includes table funding. A mortgage banker must also hold a mortgage broker license before brokering Wisconsin residential mortgage loans.