A Mortgage Loan Originator Can Be Your Guide to the Homebuying Process. Here’s How to Choose One

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Homes are flying off the shelves this year, making it more important than ever to ensure you hire a reliable mortgage loan originator to help you close the deal. 

To keep up with the rapidly growing housing industry, the number of individuals who received new mortgage loan originator licenses nearly doubled over the last 10 years, according to the Conference of State Bank Supervisors (CSBS)

The good news is there are a ton of loan originators competing for your business. Between bank employees and individual contractors, a homebuyer could choose from a virtually limitless list of mortgage loan 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 cautions borrowers that this may be the largest 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 deal. But a bad MLO could leave you frustrated, get you into an unmanageable loan, or even encourage you to commit fraud

Here’s what you need to know. 

What Is a Mortgage Loan Originator?

A mortgage loan originator (MLO) is a person who works with a homebuyer to help them secure a home loan. MLOs can be either independent contractors or employees of financial institutions, such as banks and credit unions, and they’re sometimes referred to informally by other titles like loan officers or loan agents. 

An MLO’s basic role is to collect your relevant information, assist you with your loan application, and potentially negotiate certain terms of your mortgage, in exchange for compensation. 

But a good MLO can do a lot more, says Florida-based mortgage loan originator Jose Diaz. Diaz says it’s his job to prepare clients for the complicated process they’re about to experience, so he makes a point to explain everything up-front, “from the loan application to the closing date.” 

Pro Tip

A good mortgage loan originator will guide you through the homebuying process, help you navigate loan options and coach you on how to qualify for the best mortgage.

What Do Mortgage Loan Originators Do?

From application to closing, an MLO can be a near-constant service provider and point of contact during the homebuying process. In fact, Diaz says you may be in communication as often as once a day during that time. Here’s what the MLO will do:

1. Initial contact

When you first reach out to an MLO, you should expect to receive some guidance on how to prepare for your loan application, including the documents you’ll need to gather.

This initial contact is also an opportunity to learn about the MLOs qualifications, including their understanding of any specific first-time homebuyer programs you’re interested in or property types you’d like to purchase. “Don’t be afraid to ask questions,” Ellis says. “If [the MLO is] irritated with you because you’re asking a question, that could be a red flag.” 

2. Prequalification meeting

During this first in-person meeting, the MLO will review your documents, run your credit and walk you through your financing options. 

If you’re ready, the MLO will also help you complete and submit initial applications for mortgage prequalification. Ideally, you’ll walk away from the meeting with a loan offer that you can use to shop for homes, but the MLO can also provide tailored advice on how to improve your chances of loan approval, including steps you can take to improve your credit, says Diaz.

3. Submit your full loan application

The MLO can offer you advice and guidance as you search for properties that meet your preapproval 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 from 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 a lender they contract with.

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 particularly important in a market where mortgage rates are quickly rising

4. Coordinate with other parties

While you work to close an offer on your home, the MLO will be in communication with several parties to ensure the closing process goes smoothly. Diaz says this can include anything from fielding requests from your underwriter, answering questions from your real estate agent, or negotiating fees with the title company.

5. Facilitate loan closing

Finally, the loan originator will walk you through the total amount of cash you need to close on the loan, and set up your closing table meeting 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 buyer isn’t clear on the difference it’s not necessarily going to impact their experience, says Diaz. And from her side of the table, Ellis says there really is no difference.

When it comes to working with an independent MLO versus a bank-employed loan officer, however, you may want to know what sets them apart from one-another:

  • Compensation. A bank employee will receive income regardless of the end-result of your loan, but an independent MLO is only paid commission if you close.
  • Loan access. An independent 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.
  • Licensing. Bank-employed loan officers may have to be screened and trained by their employers, but unlike independent MLOs, they do not always have to carry individual licenses from the Nationwide Multistate Licensing System (NMLS).

How to Choose a Mortgage Loan Originator 

Deciding which independent MLO, bank or non-bank lender to go with is really a matter of preference, says Ellis, but referrals from friends and family can help. 

To find the right mortgage loan originator, Diaz recommends that you start by shopping around and asking questions, since not every MLO will be a good fit. “Sometimes we work for a lender or we work for a bank, and our lender doesn’t have the program that’s the best fit for the client,” he says.

Beyond the ability to help you apply for the best loans, both Ellis and Diaz agree that “chemistry” matters, since you can really benefit from things like a natural connection, comfort in discussing your finances with your MLO, and shared communication styles.

On the other hand, there are some red flags that should prevent you from working with an unscrupulous lender or mortgage loan originator: 

  • Independent MLOs who don’t have a current license
  • Up-front fees or any fees that are to be paid directly to the agent
  • Pushy or impatient behavior 
  • Pressure to sign blank documents or to fabricate information

In addition to falsified documents, Ellis points out that you should be on the lookout for common signs of mortgage fraud, like last minute changes to your wiring instructions. If you receive an urgent email or written communication requesting a wire, it may even be from a fraudster who’s impersonating your lending institution. Be sure to call your MLO directly to confirm.

Frequently Asked Questions (FAQ): 

Do mortgage loan originators need to be licensed?

Yes. The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) requires residential mortgage loan originators (MLOs) to obtain and maintain licenses, whether through their employer or through the state.

In order to maintain licensing, an MLO who works as an independent contractor must complete ongoing education and pass an annual background check and credit check.

How much are 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.