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What Is a Loan Officer?

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A loan officer is usually the first person you’ll come into contact with when you’re in the market for a mortgage to buy a home. They may be called by different names — mortgage loan originator, mortgage banker, mortgage consultant, home loan consultant — but in the end, their function is the same: to provide you with the information you need to make an informed decision.

The training and education of loan officers has become heavily regulated since the housing crisis, which is a good thing for consumers. It means recently licensed loan officers have more education and knowledge to help you navigate the home loan approval process.

In this article, we’ll go over what a loan officer does, how they are trained and how to select one that’s best for you.

What is a loan officer’s job?

A loan officer’s job is to accept a residential mortgage loan application or negotiate terms of a residential mortgage loan application, according to the Nationwide Mortgage Licensing System and Registry (NMLSR).

In simpler terms, a loan officer is paid to provide you with information leading to your choice of a mortgage to purchase or refinance a home. The loan officer is trained and educated to understand the guidelines of a number of different loan programs to determine the best program for you, based on a review of your income, assets, credit and the type of property you are buying.

Your goal as a consumer may be to get your best rate at your lowest costs, but there are a  number of variables that a loan officer considers when suggesting the best program for you.

This includes how quickly you need to close and any credit, income or down payment challenges you may have. These can all have an impact on the rates and fees you’ll pay.

With a new purchase transaction, the loan officer not only has to consider your best rate and fees, but also your contract closing date. Lenders who offer the lowest rate may be inundated with a high volume of new loans, which could be a problem if the seller of a home you want to purchase wants a quick closing.

The loan officer’s job is to take all of these moving parts under consideration, and provide you with your best plan to get you approved on time, at your best rate and with your lowest fees.

Education and training requirements for loan officers

Before 2008, there were no federal government regulations regarding who could be a loan officer and no minimum standards for individual states on how to license people paid to facilitate a mortgage loan for a consumer.

In the aftermath of the housing crisis, Congress passed the Secure and Fair Enforcement Mortgage Licensing Act of 2008, requiring new standards for education and licensing of loan officers. The law also created a national registry to track the employment of all licensees across the country, called the Nationwide Mortgage Licensing System and Registry (NMLSR).

Here are the requirements all licensed mortgage loan originators must fulfill to obtain and maintain their licenses every year.

Criminal and credit background check

New licensees must submit to a federal and local background check. The process includes FBI fingerprinting, and loan officers must have the following.

  • No previous revocation of a loan officer license.
  • No felonies involving fraud, dishonesty, breach of trust or money laundering.
  • A credit report that reflects financial responsibility and general fitness.

Education and ongoing training

The SAFE Act requires not only initial training and licensing, but ongoing annual training and licensing for any active loan officer.  All licensees must meet these requirements.

  • Pass a national mortgage test with a score of at least 75%
  • Take 20 hours of pre-licensing education that cover federal law and regulations, ethics including study of fraud, consumer protections and fair lending, and standards of nontraditional lending.
  • Complete eight hours of continuing education every year to include updated training and knowledge of the same topics included in mandatory pre-licensing courses.

How loan officers learn about loan programs and interest rates

You may have noticed the federal requirements for loan officer education don’t include specifics on loan programs, or interest rates and costs. However, the pre-licensing class does include coursework on the different loan programs available, and requires that loan officers understand how to make the calculations needed to qualify you for a loan.

Mortgage math is complex, requiring memorization of formulas to correctly calculate your monthly payment, how much buyers need to put down, how much buyers can qualify for and who meets guidelines for the many different programs that exist for mortgage financing.

The Mortgage Bankers Association offers courses to help new loan officers get up to speed faster.  Fortunately, computerized loan application systems do much of the heavy lifting, and a properly completed loan application will allow an automated underwriting system to reduce the possibility of qualifying surprises.

Many loan officers are initially hired as loan officer assistants, so they can gain the on-the-job training that is essential to a financial transaction with so many moving parts. To get an idea of the complexity, look at the table below showing what a loan officer has to consider during the mortgage loan qualification process versus a loan officer for a car loan or a personal loan.

What Different Types of Loan Officers Need to Verify
Qualifying parameter Mortgage loan officer Personal loan officer Auto loan officer
Income analysis Yes Yes Yes
Credit analysis Yes Yes Yes
Asset analysis Yes No No
Property analysis Yes No No
Title analysis Yes No No
Insurance analysis Yes No Yes
Occupancy analysis Yes No No

Besides knowing how to analyze the factors above, the loan officer is in contact with a variety of different members of the mortgage approval team, such as loan processors, underwriters, document preparation and closing personnel to make sure everything stays on schedule.

Loan officers need communication skills to keep real estate agents up to date and handle any delays or loan approval problems along the way. If they are new to the mortgage industry, they likely have a manager who can help bridge any knowledge gaps to get the answers you need during the loan process.

Questions to ask a loan officer when you’re shopping

When you are shopping for a mortgage, it’s best to ask each loan officer you speak with a few questions beyond just rates and terms. You’ll also want to look for the types of questions they ask you back.

In order to get an accurate rate quote, any loan officer should be asking for much more information than your loan amount, FICO Score, sales price and the type of loan program you’re looking for. Accurately quoting an interest rate requires a lot of data, and if you’re getting a quote that sounds substantially lower than others, you need to make sure you provided the same information to each loan officer you spoke with.

It’s also not a bad idea to ask the following questions.

How much experience do you have as a loan officer?

If the answer is “not much,” that’s not necessarily a reason to cross that loan officer off your potential candidate list. Listen to the answer in details as well as the quality of the options you receive.

A good loan officer will not only quote you rates and fees, but explain why the cost and loan product being selected are the best fit for your particular mortgage needs. The deeper they dive into your income, credit and asset history from the first phone call, as well the type of property and price range, the better the chance is you’re working someone who will deliver on the best home loan financing for your circumstances.

Do you specialize in any types of loans?

Self-employment, VA loans (which are loans for current and retired military) and renovation loans require specialized knowledge. Standard conventional and FHA loans make up the bulk of home loans applied for since both programs have simple qualifying guidelines, without a lot of specialized analysis required.

Why should I choose your company?

This may seem like an obvious question, and not all consumers are comfortable asking it — but you’ll get an idea of where the company’s strengths are from the answer. If the loan officer sells the quality of the service, and mentions competitive rates, chances are the company is good at more difficult loans, but may not necessarily have the lowest rates in town.

On the other hand, lenders who are unequivocal about having the lowest rates may require you to jump through a few more hoops to get your loan approved.

Working with your loan officer during the loan process

Besides working to obtain a mortgage and competitive rates with low costs, the loan officer also has a legal responsibility to show that you have the ability to repay your loan. Here are few tips that will help your loan officer provide you with your best mortgage possible.

Fill out a complete application

The more details you provide on your loan application, the more accurate your rate and price quote will be. Your loan officer will also have a much easier time with your approval, if all the facts of your credit, income and asset are known from the beginning of the application process.

Provide all of the documentation the loan officer requests

The home loan preapproval process can feel very invasive, and sometimes people are hesitant to provide all of the documentation a loan officer requests. There was a time when you could just provide the first page of your bank statement, the first two pages of your tax returns and little more to get approved for a mortgage loan.

Unfortunately, during the housing crisis, homeowners, real estate agents and mortgage companies involved in fraud rings took advantage of weak requirements to manufacture the required documents. New legislation and regulations were enacted that require more documentation to protect taxpayers against mortgage losses due to fraudulent documentation, and they include requiring all pages of any financial statement or tax statement.

Be honest about changing circumstances

It’s always best to be honest and upfront with your loan officer about anything related to your loan application. If you are leaving your current job, or received a cash gift, or need to open up a credit card to cover an unexpected expense, it’s much better to let your loan officer know upfront, as there are often strategies that will still allow you to get approved.

Underwriters don’t like to be rushed into making an approval decision for sudden changes in circumstances, so the sooner you and your loan officer share anything that comes up, the better chance that you’ll be able to work out a solution that still allows your loan to be closed.

The bottom line: Your loan officer represents you

Don’t hesitate to call, email or text your loan officer with any questions you might have before, during and after the loan process. The nature of homebuying and refinancing often requires working after hours and on weekends, and most loan officers make themselves available, because they understand the huge commitment you are making by purchasing or refinancing a home.

A loan officer can be a great asset to you as you use your home equity and mortgage as part of a financial plan. Even if you aren’t planning to buy something or refinance immediately, it’s a good idea to check in every once in a while to find out how rates are doing, and get a quick analysis of your home’s equity.

This article contains links to MagnifyMoney, a subsidiary of LendingTree.


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