When it comes time to apply for a home loan, you start by sitting down with a mortgage loan officer. These are employees hired by the bank to collect preliminary financial documents from prospective borrowers and evaluate their credit-worthiness.
Let's take a look at how mortgage officers are paid and how that can affect how you go about choosing a mortgage company.
What Mortgage Loan Officers Do
There are many different ways in which banks go about determining whether a particular loan applicant qualifies for a loan worth a certain amount. Technological advances have made it easier for lenders to assess each borrowers' financial situation and credit-worthiness. But before you have your data run through an algorithm, you need to first go through a mortgage loan officer.
A mortgage loan officer is a professional hired by a bank or other lending body to screen loan applicants. They are one of the first points of contact for those looking for a mortgage to buy a house. Your loan officer will start by asking about your financial situation and collecting documents to verify the information you provide.
The mortgage officer then gets to work deciding whether you should get the loan you are looking for. They use both your financial data and various statistical methods to make this determination. Mortgage officers also provide information on the different loan products available to borrowers and which might be the best for their needs.
Mortgage Loan Officer Commissions
There are two ways in which mortgage loan officers make money. The first is through the upfront costs that are involved in a loan application. That includes things like processing fees and origination fees. With these kinds of payments, borrowers know exactly what their expenses are.
The other way mortgage loan officers get paid is through commissions on the loans that get approved. The standard commission for a loan officer is 1% of the loan amount. So if a loan officer approves a loan worth $300,000, their cut is $3,000.
Banks usually incorporate the cost of this commission into the borrower's interest rate. So even if you're told you're getting a “no fee” mortgage, the bank may be charging a higher interest to compensate for not charging upfront fees.
How to Evaluate Information from a Mortgage Loan Officer
It's clear from the commission-based model that mortgage loan officers may not always act in your best interest. Since they get paid a percentage of the loan amount, they are motivated by getting borrowers to sign up for a larger loan. It's important that you know whether or not the loan product you're being offered by a mortgage loan officer is the right one for you.
One way you can do that is by looking at the annual percentage rate (APR) of your loan. APR is a figure that you can see on the good faith estimate provided by your loan officer. It takes into account both one-time fees as well as the interest rate on an annual basis.
You can compare different loans by looking at the APR and the other information in the good faith estimate. That gives borrowers a way to compare different loans and get an estimate of their annual expenditure on mortgages.
The Difference Between a Loan Officer and Mortgage Broker
Mortgage brokers are professionals who work as intermediaries between borrowers and various lenders. They work with borrowers to understand what kind of mortgage they're looking for. Then they match the borrower with one of the lenders they work with depending on the kind of loan product they provide.
The main difference between a mortgage loan officer and mortgage broker is their form of employment. Loan officers work for a single bank or lender. Mortgage brokers are independent professionals who work with a network of lenders.
Although mortgage brokers don't work for a single lender, this doesn't necessarily mean that they're looking out for your best interests. Brokers still get paid a commission based on the terms of the loan they're able to get approved. So borrowers should evaluate the information they get from a mortgage broker in the same way they would with a loan officer.
What do Mortgage Loan Officers Look for from Borrowers?
A mortgage loan officer's main job is to decide whether you should get the loan you're applying for. There are a few things borrowers can do to increase their chances of getting a loan.
One of the most important things to do well before you apply for a loan is to start improving your debt-to-income ratio. A high debt-to-income ratio tells your loan officer that you already have debts that are weighing you down financially. Borrowers should start chipping away at their debts if they're looking to get a mortgage at a good interest rate.
A healthy credit score can also play into your ability to get a mortgage a good rate. Applying for credit multiple times within a short period and being late on credit card payments can affect your credit score negatively.
Borrowers can find it challenging to compare different banks and loan products based on the information provided by mortgage loan officers. Clever Partner Agents solve this problem by recommending local mortgage companies to home buyers. Our Partner Agents are familiar with the mortgage providers in their city and provide unbiased information to buyers based on their financial requirements.
Buying a house in qualifying state with a Partner Agent can get you a $1,000 Home Buyer Rebate, which can contribute to things like closing costs. Connect with Clever to find a Partner Agent who can help you throughout the home buying process.