What is a Loan Officer?
According to Forbes.com, a loan officer’s job is to accept an application that the borrower has filled out, and then hand it off to the underwriting department.
“An independent loan originator, on the other hand, typically renders more services to the borrower, including things like advising the client about the best loans available for their specific purposes, gathering required documentation throughout the process, ordering the appraisal and communicating directly with the underwriter to ensure that the loan gets approved,”
What is an Underwriter?
According to Loanvest.com, a mortgage loan underwriter is tasked with carefully analyzing every bit of information the loan officer asks you to provide as part of the loan application process, as well as the collection of verification documents that you may be required to send in later to substantiate the information you’ve already provided. The underwriter will then attempt to verify two primary things in order to meet the bank’s criteria for offering you a loan: general creditworthiness and debt-to-income ratio.
The Loan Process
A large bank or credit union relies on the underwriter, or underwriting department, to handle all of the above tasks—and these departments aren’t working as representatives for the borrower. The takeaway for the consumer: Mortgage rates available at an independent loan originator, whether a broker or a small banker, will not be higher than those offered through a larger bank. In fact, in many cases, the rates may be somewhat lower, partly because independent mortgage brokers typically have more loan sources available to them compared to the big banks, which usually just have a handful of loan products to offer prospective homeowners, according to Forbes.com.
“For instance, mathematically, paying 1% of the loan amount to reduce the rate by .25% will break even in about four years, but it seldom makes sense unless the borrower plans to use the lower rate to pay off the loan faster. As far as fees are concerned, you have to make a distinction between lender fees (underwriting, document prep, processing, etc.) and third-party fees (title, escrow, appraisal, recording, notary). Some lenders and brokers have very high lender fees, while others may have higher rates instead,”
What is a Mortgage Broker?
A mortgage broker is an independent real-estate financing professional who specializes in the origination of residential mortgage loans. Mortgage brokers normally pass the actual funding and servicing of loans on to wholesale lending sources. Getting a mortgage brokers license is not easy and also requires yearly continuing education. A mortgage broker is also an independent contractor working with, on average, as many as forty lenders at any one time, claims the EducatedMortgageServices.com website. “By combining professional expertise with direct access to hundreds of loan products, your broker provides the most efficient way to obtain financing tailored to your specific financial goals,” according to EducatedMortgageServices.com.
What top factors determine if someone gets a loan?
Most people that are buying a home require a mortgage to do so. Whether you are buying a home in Wilmington, Panama City Beach, Boston or Dallas – 93% of home purchases require a mortgage. Even if you have the cash to purchase the property, the rates on a mortgage coupled with the tax benefits make it a no-brainer.
Forbes.com says, the most important thing is the debt-to-income ratio (DTI), which is calculated by taking the total house payment (principal and interest, taxes, insurance and mortgage insurance, if applicable), adding all “long-term” debt payments (any that will continue for more than 10 months), and then expressing that sum as a percentage of the gross monthly income. For a conventional loan, 50% is the maximum value, but some loan programs may allow a higher DTI.
That’s why you need a mortgage broker to act as a liaison between the title and escrow company, real estate agent, lender, appraiser, credit agency, the underwriters, the processors, attorneys, and any other services which may affect your transaction.
EducatedMortgageServices.com says a mortgage broker also:
- Discusses and explains financing program options
- Informs you, in writing, of lock-in options
- Explains all documents of the loan application
- Factor the pro-ration if any exists
- Explains all associated costs of the loan application
- Explains the disbursement of all loan applications
- Explains the loan process, from application to closing
- Provides you with a good faith estimate of cost and fees
- Communicates with you throughout the loan process in a timely manner
- Coordinates the final closing of your transaction
Some loan officers do offer credit repair consulting for a fee, according to OwnerFinanceAtlanta.com.
“For many home buyers, this is a smart way to get the assistance they need. Also, putting a price tag on the repair takes away some of a loan officer’s concerns about your commitment to improving your credit. If your loan officer offers such a program, you’d be wise to consider it.”
Sit down with your loan officer (even if it costs you) for a strategy session,OwnerFinanceAtlanta.com recommends. Get them to make three or four specific suggestions that you can take action on over the next 6 months. Then, go and do the tasks suggested. Come back in six months for another session to check your status and get suggestions for the next six months. Step by step, you’ll eventually reach your credit goal and be on your way to purchasing your new home.