Buying a home in the Tampa Bay area soon?
The world of real estate has many different types of professionals. If you are a buyer looking to purchase a piece of property with financing, an area that can get a little confusing involves the professionals within the mortgage lending landscape.
According the National Association of Realtors, over 80% of buyers require some level of financing to be able to buy a home. Ironically, while ensuring you are qualified for a loan to buy a house is the recommended first step in the home buying process, many buyers start by contacting a real estate agent. When the need for pre-qualification comes up, buyers will usually do one of two things: Go to their bank or use the Realtor’s recommendation.
Either option can lead to exceptional results and an outstanding buying process, however, buyers often do not realize that there are different providers in the mortgage space and who they choose can impact the loans offered and how much they pay for their home in the long run. To help you understand your options, we have outlined several key players you may come in contact with or hear about throughout the process.
Per the Bureau of Labor Statistics, Loan Officers evaluate, authorize, or recommend approval of loan applications for people and businesses. Most Loan Officers are employed by commercial banks, credit unions, and related financial institutions. This means that while they may have access to different types of loans available through their lending institution, they can only fit you to a loan offered by their employer.
To qualify for loan, a Loan Officer may need you to have an existing account with their bank or lending intuition and to meet stringent requirements that match their employer’s tolerance of risk. Since the 2008 mortgage crisis in the United States, some banks have exited the mortgage business while others have adopted conservative loan requirements.
When deciding on a Loan Officer, you need to research the reputation of their employer, after all they will likely service your mortgage long-term. You also need make sure you can communicate and get along well with your Loan Officer. If you don’t hit it off, try visiting another branch of the same lending institution, they will have access to the same loan programs.
Loan Officers will typically take your application and gather all necessary documentation related to your loan. This package is then submitted to other departments such as processing and then underwriting where approval decisions are made. Loan Officers are paid either hourly or a salary by their employer and may receive bonuses for number of loans applications or dollar amount of the loans.
Think of a Mortgage Broker as an independent consultant. They may work with a mortgage brokerage company or their own a mortgage brokerage. They are not lenders and in the majority of cases they will not service your mortgage loan. Instead, they have relationships with a diverse collection of lenders and will find a loan to meet your needs. The source of funding may include banks, wholesale mortgage lenders, equity funds, and even private lenders.
Mortgage Brokers will assess your loan needs then “shop the market” for the best loan available. There are strict regulations in place to help ensure that your broker provides the best loan for your needs rather than a loan that pays them the most.
Depending on the size of the team, a mortgage broker may have in-house loan processors or may outsource this function. Ultimately, a mortgage broker who wants to be successful will ensure clients have the best loan experience possible, regardless of how their back-office functions are arranged.
A well-established mortgage broker has great relationships with their lenders and the underwriting teams and has a high rate of closing loans in a reasonable amount of time. They are paid by the lender typically as a flat fee or percentage of the mortgage amount. Newer industry regulations prevent mortgage brokers from being paid or bonused based on the interest rate of a loan.
A Mortgage Underwriter may work for a bank, lending company, or private fund. They are the decision makers who review all the documentation submitted for a loan and decide if all requirements have been met and if the loan applicant is qualified for the loan.
They represent the lender and are responsible for analyzing the loan package and determining if the lender will take on the risk associated with approving a loan. They examine criteria such as the applicant’s credit rating and history, the applicant’s perceived capacity for repaying the loan, and the value of home being purchased in terms of loan collateral.
When a loan is delayed or “falls through” many people think this is done by their Loan Officer or Mortgage Broker. Certainly, failure to properly match applicants with loan requirements or to submit critical documentation can impact the viability of a loan. However, the ultimate decision on approving or declining a loan falls with the Mortgage Underwriter. While most properly submitted loans are approved, sometime changes in underwriting requirements can “kill” a loan and stop a real estate transaction.
Mortgage Underwriters are employed by banks and lending institutions and go through extensive training to evaluate loan applications. While they must be mindful of risk, Mortgage Underwriters do not aim to decline loans. On the contrary, their paycheck and job security depend on approving as many healthy loans as possible.
Know Who Guards the Money!
When it comes time to buy a home or refinance your current home, be mindful of the service providers available to you. In some instances, the Loan Officer at your bank may have the best rates and terms for you. In other situations, your best bet may be to consult with a Mortgage Broker with access to dozens (maybe hundreds) of lenders who may offer better rates and terms.
Whomever you choose, be certain to submit all necessary documentation carefully so that the Mortgage Underwriter can clearly see that you meet all requirements and easily approve your home loan.
At Flagship Title we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 813.875.1200.
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