What Is a Loan Officer?
A loan officer is someone who takes loan applications and provides rates, fees, and terms regarding the loan that you are applying for. A mortgage loan officer is someone who takes mortgage loan applications, and discusses rates and terms with potential borrowers.
Most MLO’s or mortgage loan officers are licensed to operate in the state they work in. However, mortgage loan officers who work for FDIC banks are not required to obtain a license.
If you want to obtain a mortgage then you’ll need to work with a loan officer in order to do so.
A good loan officer will help you find the right loan type and mortgage terms. They will work with you to keep your loan within your budget and won’t pressure you to be additional fees or spend more than you are comfortable with.
It’s important to note this because many loan officers, especially for larger online companies are just salespeople. They learn elaborate scripts all designed to get you to agree to use them even if their rates and fees are expensive.
We believe it’s extremely important to work with someone who is local to you and understand your state, city, or town. If your loan officer is giving you Boiler Room vibes, it might be time to consider using someone else.
What Does a Loan Officer Do?
If you’ve never purchased a home before, the entire process can be a bit jarring. For most borrowers, the largest purchase they’ve made before buying a home is buying a car. So naturally many people try to relate the experience to buying a home.
Getting a mortgage is way different than buying a car. The process takes much longer, the amount of paperwork required is a lot more, and the requirements are different.
For borrowers with good credit, buying a car is as simple as pulling a credit report and signing paperwork. Little if any documents are collected, and you are on your way.
When buying a house and getting a mortgage, it doesn’t matter if your credit score is 800 or 600, the amount of documents you have to provide is the same.
This is because your credit score is one of only three important factors that determine what you qualify for. The other two are your income and your assets, both of which require documents to verify.
So even though your loan officer is likely asking you a bunch of personal questions, asking for things like your paystub, tax returns, and bank statements, they are an advocate for you.
An Advocate For You
A good loan officer is one who is advocating for you and not the bank. While the LO has a responsibility to the bank to make sure that there’s no fraud, your loan officer should place your needs above their own.
It’s also important to remember that because your loan officer is an advocate for you, don’t hide things from them. The mortgage process is very sophisticated. If you attempt to hide things like your income, where your funds are coming from, or anything else, the process is thorough enough to uncover it.
The problem is that it’s usually not uncovered until you’re close to closing the loan and have already invested time and money into the process. So be transparent with your loan officer because it’s their job to get you to the closing table.
Take Your Loan Application
The first thing your loan officer is going to do is take your loan application. This can be done in person, over the phone, or what is most common is online. The mortgage application is very thorough, and it’s important to be truthful and thorough when you complete it.
A good loan officer will discuss your loan application with you after you’ve completed it. They may ask additional questions to clarify anything on the application.
An experienced loan officer can look at your loan application and identify any potential issues, additional documents that might be required, and set expectations from there.
This is one of the biggest reasons why doing automated online pre-approvals with a computer doesn’t work. If you’ve done one of these but haven’t had a thorough conversation with an LO, you are putting yourself at unnecessary risk.
Validate Your Application With Documents
The next thing your loan officer is going to do is validate your application. When applying for a mortgage the bank doesn’t just take your word for it. Your loan officer will need documents to back up your income, assets, and credit, as well as other issues like child support or divorce.
You should expect to provide the following documents to your loan officer:
- Last 30 days of paystubs
- Last 2 years of W2’s
- Previous 2 year Tax Returns
- Most recent 60 days of bank statements
- Copy of your driver’s license
- Social Security Card
- Any other items related to proving your income or down payment funds
Find The Right Loan and Terms For You
After validating your application and pre-approving you, your loan officer should find the best loan programs that fit your needs.
- A good loan officer will only approve you for what your budget can handle, which is a conversation you should be prepared to have.
- They should present options that are in line with the amount of money you are comfortable putting down.
- Rates should be in line with the market. Beware of any loan officer who tells you that you must choose between good service and low rate. There are plenty of local mortgage brokers who provide amazing service and rates that are below market.
Your loan officer and your real estate agent are your primary advocates during this process so it’s crucially important that you can trust and reach whoever you are working with.
If your loan officer continues to try to sell you on high mortgage points or fees, that’s a red flag and you should get a second opinion.
Help Your Close Your Loan On Time
Your loan officer is like the quarterback of your home loan team. Their job is to stay on top of deadlines including your closing date.
A good loan officer will stay on top of things like:
- Ordering your appraisal
- Sending your loan to underwriting
- Collecting documents from you
- Communicating with realtors
- Order Title work
- Getting your documents to title
However, you should remember that this is a team effort. There are multiple parties involved in getting a loan closed and everyone must be prompt in doing their part in order to reach the deadline.
If you need to provide documents, it’s important to do that within 48 hours or let your loan officer know if you can’t.
While this list is not exhaustive, these are just a few of the many things your loan officer should be doing for you. If you feel like you aren’t getting this level of service you should definitely get a second opinion.
What are the different types of loan officers?
Mortgage Brokers:
A mortgage broker is a loan officer who works for an independent mortgage broker, and represents multiple lenders. Brokers have access to wholesale interest rates, lower fees, and more options.
Most brokers have access to hundreds of different lenders so they are able to truly tailor loan programs to your needs. For these reasons, Bayou Mortgage is a mortgage broker. We believe options, flexibility, and lower rates and fees are the most important things we can offer our clients.
Mortgage Bankers:
Mortgage bankers are going to be loan officers that work for one bank or lender. They represent that bank can offer their programs and rates only. While most banks and lenders offer the same basic programs, they can add their own requirements on top of the basic ones set out for each program.
Some banks may require higher credit scores, lower debt-to-income ratios or larger down payments in order to work with you.
In addition, banks don’t have to disclose their compensation to the borrower, and often times make 2-3 times more than a broker does on a loan.
Ask a banker about these things and they’ll probably reply back that they have more control over the process, their rates aren’t that much more, or they provide “better service”.
It’s pretty obvious which side of the fence I fall on, however, I have worked for both.
What Type of Training Do Loan Officers Receive?
Most loan officer receive two different types of training
- NMLS Licensure: A mandatory 20-hour pre-licensure course and passing a national standardized test. The LO must pass the test with a score of 75% or better.
- Ongoing CE Training: Each year a loan officer is also required to complete 8 hours of continuing education usually focused on fraud or compliance best practives.
The rest of an LO’s training comes from on-the-job training. It’s up to the LO and their employer to teach them about loan programs, requirements, and other mortgage-related activities. This is why working with a knowledgeable loan officer is key because there is no baseline knowledge needed to become a loan officer.
How Much Does a Loan Officer Cost?
Federal law requires that loan officers are paid the same rate or percentage regardless of loan program. If the loan officer is paid a percentage it must be a percentage of the loan amount.
Most loan officers are paid via a percentage that ranges from .05% to 2% of the loan amount, depending on their compensation plan, experience, and what type of company they work for.
The important thing to note is that the borrower (you) doesn’t compensate the loan officer directly.
- Mortgage bankers compensation is provided by the lender they work for.
- Mortgage brokers compensation is provided by the lender who does the loan or the borrower if they choose borrower-paid compensation.
No matter which type of loan officer you work with, they cannot earn extra by charging you a higher rate, higher fees, or pushing you into a certain loan program.
However, for mortgage bankers, the lender themselves can earn more based on these factors. Mortgage brokers have federally mandated maximum compensation of 2.75% of the loan amount. It’s not uncommon for a mortgage banker to charge 4,5 even 6% of the loan amount on VA, FHA, or USDA Loans.
You won’t see this show up as a fee, instead, it comes in the form of a higher interest rate.
Whoever you choose to provide your mortgage, make sure it’s someone you can trust. Someone you can walk into an office or see, pick up a phone and speak with.
Don’t fall for high-pressure sales tactics or bait and switch offers that are so prevalent online.
