Homes are flying off the shelves this year, making it more important than ever to make sure you hire a reliable mortgage lender to help you close the deal.
To keep pace with the rapid growth of the housing sector, the number of people who received new mortgage licenses has nearly doubled in the past 10 years, according to the Conference of State Banking Supervisors (CSBS).
The good news is that there are a ton of loan originators competing for your business. Between bank clerks and individual contractors, a homebuyer could choose from a virtually limitless list of mortgage originators (MLOs) to work with. So how do you choose?
Buying a home is not a decision to be taken lightly, says Molly Ellis, training and outreach manager at the California Housing Finance Agency. Ellis warns borrowers that this may be the biggest and most difficult financial transaction of their lives. In other words, you’ll want to choose your MLO wisely.
Choosing a well-qualified Mortgage Loan Officer (MLO) could lead to a more streamlined mortgage application process and a better mortgage offer. But a bad MLO could frustrate you, drag you into an unmanageable loan, or even encourage you to commit fraud.
Here’s what you need to know.
What is a Mortgage Originator?
A mortgage originator (MLO) is someone who works with a homebuyer to help them get a home loan. MLOs may be independent contractors or employees of financial institutions, such as banks and credit unions, and they are sometimes informally referred to by other titles as loan officers or loan officers.
The fundamental role of an MLO is to collect your relevant information, help you with your loan application and possibly negotiate certain terms of your mortgage, in exchange for compensation.
But a good MLO can do so much more, says Florida-based mortgage originator Jose Diaz. Diaz says it’s his job to prepare clients for the complicated process they’re about to go through, so he’s keen to explain everything from the start, “from the loan application to the closing date.”
A good mortgage originator will guide you through the home buying process, help you navigate loan options, and explain how to qualify for the best mortgage.
What do mortgage originators do?
From application to closing, an MLO can be a near-constant service provider and point of contact during the home buying process. In fact, Diaz says you can be on a call up to once a day during this time. Here’s what the MLO will do:
1. First contact
When you first contact an MLO, you should expect to receive advice on how to prepare your loan application, including the documents you will need to gather.
This initial contact is also an opportunity to find out more about the qualifications of MLOs, including their understanding of the specific homeownership programs you are interested in or the types of properties you wish to purchase. “Don’t be afraid to ask questions,” says Ellis. “Whether [the MLO is] irritated at you for asking a question, this could be a red flag.
2. Pre-qualification meeting
During this first in-person meeting, the MLO will review your documents, manage your credit, and guide you through your financing options.
If you’re ready, MLO will also help you complete and submit initial mortgage prequalification applications. Ideally, you’ll leave the meeting with a loan offer that you can use to buy homes, but MLO can also provide personalized advice on how to improve your chances of loan approval, including steps you can take. can take to improve your credit. , says Diaz.
3. Submit your complete loan application
The MLO can offer advice and guidance as you search for properties that meet your pre-approval requirements. Then, once you’ve found a property you want to buy, the mortgage originator will help you submit a completed mortgage application for final approval by the mortgage lender.
If your MLO is a bank employee, your application will be submitted to the bank. If you’re working with an independent MLO, according to Diaz, they may submit to a particular mortgage broker or lender with whom they have a contract.
The MLO should also help you set up a rate lock with the lender, says Diaz. A rate lock is a guarantee that your rate will stay the same for a set period of 15 days or more, which can be especially important in a market where mortgage rates are rising rapidly.
4. Coordinate with other parties
As you work to close an offer on your home, the MLO will be in communication with multiple parties to ensure the closing process runs smoothly. Diaz says that can include anything from responding to inquiries from your underwriter, answering questions from your real estate agent, or negotiating fees with the title company.
5. Make it easier to close loans
Finally, the loan originator will explain the total amount of money you need to complete the loan and arrange your closing table with a notary and any other parties who need to attend.
Mortgage Loan Officer vs Mortgage Loan Originator
The terms “mortgage loan officer” and “mortgage loan originator” are often used interchangeably, and understanding the distinction can feel like splitting hairs.
If a shopper isn’t clear about the difference, it won’t necessarily impact their experience, Diaz says. And from his side of the table, Ellis says there really is no difference.
However, when it comes to working with an independent MLO versus a bank-employed loan officer, you might want to know what sets them apart from each other:
- Compensation. A bank clerk will receive income regardless of the end result of your loan, but a freelance MLO only receives commission if you close.
- Access to loan. A freelance MLO may have the ability to submit your loan application to multiple mortgage brokers or lenders, while a mortgage banker will only submit your application to their employer.
- Licence. Loan officers employed by banks may need to be selected and trained by their employers, but unlike independent MLOs, they do not always have to hold individual licenses from the National Multistate Licensing System (NMLS).
How to Choose a Mortgage Originator
Deciding which independent MLO, bank or non-bank lender to go with is really a matter of preference, says Ellis, but recommendations from friends and family can help.
To find the right mortgage originator, Diaz recommends you start by shopping around and asking questions, because not all MLOs will fit. “Sometimes we work for a lender or we work for a bank, and our lender doesn’t have the program that’s best for the client,” he says.
Beyond the ability to help you apply for the best loans, Ellis and Diaz agree that “chemistry” is important, as you can really benefit from things like a natural connection, the comfort of discussing your finances with your MLO, and shared communication styles.
On the other hand, there are some red flags that should keep you from working with an unscrupulous lender or mortgage originator:
- Freelance MLOs that do not have a current license
- The initial fee or any fees that must be paid directly to the agent
- Insistent or impatient behavior
- Pressure to sign blank documents or fabricate information
In addition to falsified documents, Ellis points out that you should be on the lookout for common signs of mortgage fraud, such as last-minute changes to your wiring instructions. If you receive an urgent email or written communication requesting a transfer, it may even be from a fraudster posing as your credit institution. Be sure to call your MLO directly to confirm.
Frequently Asked Questions (FAQ):
How much are the mortgage origination fees?
Most lenders charge around 1% of the total loan amount for origination fees. If you were to borrow $500,000, that 1% fee would amount to $5,000.