Mortgage loan officers advise aspiring homebuyers before and during the application process for mortgage loans. They evaluate the creditworthiness of the borrowers, assess fluctuating mortgage rates, and offer assistance to people making one of the key financial decisions of their lives.
What Is a Mortgage Loan Officer?
MLOs (Mortgage loan officers) are financial services consultants who specialize in assisting likely borrowers in processing their home loans. Because the mortgage industry is wide, mortgage loan officers serve credit unions, commercial banks, independent mortgage companies as well as financial institutions. Normally, mortgage loan officers get a commission for every loan they close, in addition to their basic monthly pay.
Mortgage Loan Officer’s Job Description
They should help to:
- Compile and assess the client’s financial information
- Assessment of the client’s creditworthiness by conducting client interviews and financial analysis
- Discuss with clients about loan options and assist them to infer the ideal option for their scenario
- Provide pre-approval letter to potential homebuyers to start their home search
- Deal with the preparation and submission of their client’s loan application
- Settle issues throughout the application process
- Guarantee compliance with the federal or state laws, privacy regulations, and confidentiality policies
What Does a Mortgage Loan Officer Do to Assist Clients?
Here’s what mortgage loan originators do in detail:
Inform About Mortgage Loan Types
One of the duties of a Mortgage Loan Officer is to inform a homebuyer or a refinancing client, whether they’re entitled to certain types of loans or not. And explain why or why not the loan type is an alternative depending on the requirements of the loan. The major mortgage loan types include:
- FHA mortgage
- VA mortgage
- USDA mortgage
- Conventional mortgage
- Jumbo mortgage
- Interest-only mortgage
Note that: Homes for Heroes mortgage loan officers are well acquainted with any local, state, or federal money-saving openings that heroes may qualify to receive when taking out a mortgage, buying a home, or refinancing.
Evaluate Your Debt-to-Income Ratio
A mortgage loan officer will precisely analyze your debt-to-income ratio to help specify how much you can borrow depending on your ability to make monthly payments and repay the money. Your DTI (debt-to-income ratio) is calculated by summing up your monthly debt payments (credit cards, car loans, student loans, and so on), divided by your monthly income before deductions and taxes are deducted.
Pull Credit Reports and Credit Score
The mortgage loan officer will pull your credit reports and score from the credit bureaus. Your credit score is a number that rates your credit risk and is calculated by credit companies. You are more likely to pay back the money timely when your credit score is high. Here’s the information that is likely to affect your credit score.
- Length of credit history (the longer the better)
- Types of credit accounts (mortgages, car loans, credit cards, and so on)
- Payment history (consistently paid on time?)
- Outstanding balances (not excessive when compared to your income)
- Pending applications for new credit accounts
Offer Pre-Approval Letter
This is among the main ones, for the current market. Mostly, sellers don’t even entertain a potential home buyer’s offer without a pre-approval letter. The key benefits of having a pre-approval letter include:
- Provides you with a good idea of how much you can offer a home seller
- Provides a home seller more confidence in your offer
- Helps to speed things up and get to closing on your home faster
Application and Loan Processing
There are a lot of numbers to bite and a good amount of administrative work to do during the mortgage process. A mortgage loan officer will nearly complete the mortgage application following an accepted offer. Additionally, they’ll manage the administrative work during the loan processing and the underwriting approval process. The mortgage loan officer will work in conjunction with your real estate agent to remain informed about how the application procedure is continuing and keep it moving along to get everything done before the close date. All this has to happen for you to close on your home with the proper paperwork. Most mortgage lenders will require at least 30 days to complete this process.
Request an Unbiased Home Appraisal
Whether buying a new home or refinancing an existing mortgage, all mortgage loan officers will order a third-party home appraisal during the loan approval process to infer an unbiased assessment of the home’s fair market value. When trying to buy a home, this helps to let you know whether the offer you submitted to the seller is reasonable given the home’s condition, location, and features.
Compiles Proper Paperwork for Closing
What does a mortgage loan officer do on closing day? To sum it up they will have all of your paperwork assembled, accurately filled out with all of the proper information, and ready for signatures to close the deal!
Note that: Mortgage Loan Officer vs Loan Originator
A mortgage loan officer and a mortgage loan originator virtually do the same things for their clients. They help their client through the mortgage application process and make sure that everything is in place for their client’s closing in a timely way. However, a mortgage loan originator can also be the real entity or institution (lender) that instigates the loan and lends the money.
How to Become a Mortgage Loan Officer
According to the Knowledge Coop, this is how to become a mortgage loan officer. But before that, are you interested in becoming a mortgage loan officer?
Known in the industry as mortgage loan originators, or MLO, these professionals play a key part in the process of helping buyers find homes that are right for them. Typically, they are the primary contact person when a borrower completes a mortgage transaction.
More specifically, they help buyers find home loans that are right for them, mortgages that fit their budget, and will allow them to stay in the homes they purchase for the long term.
Not only do MLOs support homebuyers, but they also serve a vital function in the real estate industry. With responsible MLOs, mortgage fraud and foreclosures drop significantly. Great MLOs are on the front lines in maintaining a stable home-buying market.
Many people find this to be an attractive career path. The mortgage loan officer is listed #14 in U.S. News & World Report’s rankings for business jobs. The median salary for the position is $64,660 and it doesn’t require any graduate-level education.
Mortgage Loan Officer Career Path
Before You Get Licensure
If you want to become a mortgage loan officer, you probably have several questions about what the position entails.
Let’s go over everything you need to think about before you close your first loan.
Personal Qualities
In terms of personal qualities, MLOs need to be detail-oriented people.
As an MLO, you will be collecting a range of information from potential borrowers and submitting this information to lenders. This information needs to be handled carefully and presented accurately. Staying organized is critical because the clients you work with will often be making the most important buying decision of their lives.
It is also beneficial if you are an outgoing person. You will be working with a wide range of people, and referrals tend to make up a large portion of your business. Making a good impression is key.
Knowledge of the real estate industry or at least willingness to learn is another important quality. MLOs need to stay up to date on how mortgage lending is evolving. New products, innovations, and regulations are always part of the mix.
If you are the kind of person who is always learning something new, you may want to become a mortgage loan originator.
Review Your History
MLOs deal with potential homebuyers’ sensitive financial information every day. They also act as a liaison between lending institutions and potential borrowers. Lenders need to have loans repaid; borrowers need to stay in their homes and the MLO is a cornerstone to ensuring that both are in the best situation possible.
For anyone who wants to become a loan originator, it is a career that requires you to have financial character and stability. This is to prevent bad actors from becoming involved in the industry, which was one of the main problems that led to the 2008 financial collapse.
This means you need to meet certain financial requirements and have a clean criminal history. Any of the following scenarios are likely to result in licensure rejection:
The criminal conviction related to fraud
Poor credit history
History of foreclosure or other significant unpaid debts
Previously revoked licensure in other states
Mortgage Loan Officer Requirements
Additional Requirements
In addition to registering with NMLS and becoming state-licensed, MLOs are required to:
- Provide fingerprints to the NMLS for an FBI criminal background check and authorize the NMLS to obtain a copy of your credit report.
- State-licensed, non-depository mortgage loan originators are subject to additional requirements under the Secure & Fair Enforcement for Mortgage Licensing Act of 2008 and at a minimum register with the Nationwide Multistate Licensing (NMLS).
- In some states, MLOs also must satisfy state-specific testing requirements to obtain a license. In April 2013, the NMLS launched the Uniform State Test, a section of the national exam, which replaces the state-specific test content for those states that have adopted it.
Mortgage FAQs
Here are the commonly asked questions about mortgages, according to the House Loan Blog.
How can I find out the kind of home I qualify for?
You can use online prequalification tools to connect with a loan officer and find out approximately how much you can borrow before you start shopping for a house.
Once you have that number, you can provide more information and allow your loan officer to run your credit report to verify your assets and income.
Your loan officer can also help you obtain complete written credit approval, subject to an appraisal before you make an offer on a house.
Bear in mind that there’s a difference between being pre-approved and pre-qualified.
When you’re pre-qualified, you’ve given your mortgage lender all the basic info they need to help you determine what loan program and what amount you may prequalify for.
When you’re pre-approved, your lender will have collected the necessary documents and verified your information to move the loan forward to underwriting and approval.
Prequalification can be done easily, quickly, and online. To take the next step and to get pre-approved, you may be asked for:
- Tax returns and W-2 forms from the most recent two years.
- Bank/asset statements from the most recent two months.
- Paystubs from the last 30 days.
- Valid photo ID.
But remember, by furnishing any and/or all of this documentation, you are in no way obligated to accept the terms and conditions of the mortgage offered, nor do you have to provide these documents to receive a Loan Estimate (LE).
Is there anything I shouldn’t do before I get pre-qualified?
Don’t start shopping for a new home until you’ve been pre-qualified.
Don’t pack or ship any important documents, such as tax returns, bank statements, pay stubs, and W-2s.
Pre-qualifying for your home loan before you begin shopping for a house can save you hours of unneeded stress and heartache. When you know how much house you can afford in advance, you can meet with your realtor, well-informed and ready to make an educated buy. In the eyes of a seller, a pre-qualified homebuyer also appears more motivated.
Likewise, holding on to your paystubs, bank statements, and tax returns can make a speedy prequalification even speedier. To further grease the wheels and keep your loan process moving, make all your bill payments on time. It also helps to have a paper trail of any large deposits you make, as well as to notify your loan officer directly if you plan to use a down payment gift from your family.
Note:Avoiding these actions before and during the financing process can prevent any unnecessary confusion.
Is there anything I shouldn’t do while I’m getting pre-qualified?
Don’t suddenly pay off all your debts.
Don’t apply for new credit cards.
Prequalification can be easy, but it’s after you get preapproved and the loan process progresses that your lender is required to pull a refreshed credit report before closing to check for any new debt. So, any major changes in your finances could delay your loan closing or even result in denial despite an earlier approval.
How can you keep your credit clear while your new home loan is in the works? Don’t do this:
- Apply for a new credit card, auto loan, or other types of credit.
- Co-sign a loan with someone.
- Change jobs, become self-employed or quit your job.
- Skip payments on existing credit accounts, utility bills, or loans.
- Charge up your existing credit on big-ticket items, like furnishings for a new house.
If you think any of these don’ts are musts, talk to your loan officer before you take action. They can help you figure out what to do so that your mortgage loan is the least negatively affected.
Avoiding these actions before and during the financing process can prevent any unnecessary confusion.
What are income and debt ratios?
Income ratio: Your total monthly housing expense divided by your pre-tax monthly income.
Debt ratio: Your total monthly housing expense plus any recurring debts, i.e., car payments, monthly minimum credit card payments, and other loan payments, divided by your monthly income.
Standard loan underwriting guidelines suggest a max 28 percent income ratio and 36 percent debt ratio, which may vary based on personal finances, loan program, and down payment.
While not taking on any debt and paying for everything with cash seems like a logical choice if you feel you can’t afford your lifestyle, no credit also means bad credit in the eyes of a lender.
There’s bound to be a time when you can’t buy something with cash, like buying a house (in most cases). So, we recommend opening at least three credit card accounts and making occasional purchases.
To manage your debt and maintain healthy credit, keep credit card balances to less than 30 percent of your credit limit. Also, don’t close long-term credit lines, even if they’re not being used. Your longest-standing credit card account might be a huge contributor to your credit score health and the mortgage rate you qualify for.
What are cash reserves?
Cash reserves: The extra funds available to you after your loan closes. These funds reflect your ability to make monthly mortgage payments, and different loan programs may have different cash reserve requirements.
To estimate your ability to pay your monthly mortgage, we recommend setting aside about 28 percent of your monthly income. This number factors into your debt-to-income ratio mentioned above.
For many people, any number between 25 and 32 percent of your income is manageable. But, relying on a higher percentage of your monthly income could put you at risk if you have a big financial change, like rising insurance costs or loss of employment.
What is mortgage insurance?
This insurance helps protect a lender if a borrower forecloses on their property.
Borrowers pay for the mortgage insurance, allowing lenders to grant loans they might not have otherwise.
Mortgage insurance may be required on some loans when a down payment is less than 20 percent.
Mortgage interest, insurance paid, and property taxes are normally tax-deductible for your principal residence. As confirmed by TurboTax, buying a house is an investment, but the tax deductions may be large enough to lower your tax bill “substantially.” Interest/insurance payments on a residential mortgage (as well as mortgage interest/insurance on a second home) may be fully deductible.
Likewise, selling one home and buying another means you might be able to protect the profits on the sale of your home, as long as it was used as a principal residence for any two of the last five years.
You could protect up to $500,000 in tax‐free profit when filing federal taxes jointly or $250,000 when filing single. This bonus of tax‐sheltering the profits on the sale of your home may be available to you once every two years. Homeowners who take advantage of these deductions could save hundreds of dollars in annual taxes.
What are mortgage points?
Also called discount points, mortgage points work as a one-time fee you can opt to pay if you’d like to get a lower interest rate.
One mortgage point equals one percent of your total loan amount and may drop your interest rate one-eighth to one-quarter percent lower.
You may have noticed by now that lenders charge their fees, which can vary greatly. One lender may choose to waive a fee but add on another. Another lender might quote an interest rate before adding or subtracting discount loan points that can change the total cost of a mortgage.
It is always best to disclose as much as possible on your application. There are instances where regulators will accept an applicant even though they have potential red flags. For example, many states have legal exceptions for applicants with unpaid medical debt. A criminal conviction unrelated to fraud, such as a DUI, also might not result in licensure rejection.
Research
At this point, you might be asking the question: how long does it take to become a loan officer? The answer is that it all depends on how you approach it, but rest assured if you begin investing time and money in the process, you will want to complete it.
Doing your research before diving into pre-licensure courses is important.
The National Mortgage Licensing Service (NMLS) is the main regulatory body for MLOs and has a wealth of useful information, including state-specific requirements for licensure. Here at The Coop, we have information on everything from Online CE and Live CE to a community of professionals tackling a range of questions and a list of resources for MLOs.
Taking the time to understand exactly how to become a mortgage loan originator in the first place will mean you are confident going into training.
One piece of good news is that you don’t need a specific degree to become involved in this field. MLOs typically come from a background in business, banking, economics, or finance, but it isn’t required. Instead, MLOs must obtain licensure by passing a test, taking pre-licensure education courses, and submitting information for approval by the NMLS.
Getting Licensure
Let’s say you have decided mortgage loan origination is the career path for you. What are your next steps?
The first and most important step is obtaining a valid mortgage origination license. It is illegal to practice mortgage loan origination without a state-issued license. The following will detail the steps you need to take for licensure.
Mortgage Loan Originator Licensure Requirements
The SAFE Act
One thing to remember is that each state has specific guidelines that apply to MLO licensure, and state agencies are the ones to issue licenses.
But there are several requirements listed in federal legislation that are applicable across the board. It is worthwhile to become familiar with the federal Secure and Fair Enforcement Act for Mortgage Licensing of 2008 (i.e. SAFE Act), a major bill passed by Congress in the wake of the mortgage lending crisis.
Per the SAFE ACT and the NMLS, MLOs are required to:
- Obtain licensing from their respective states
- Register with the NMLS
- Provide authorization to obtain a credit report
- Provide a variety of identifying information
- Provide fingerprints for a criminal background check
- Provide a financial services employment history for the past 10 years
- Disclose any financial regulatory body charges against them
- Attest to the completeness and accuracy of the information provided.
- Pre-Licensure Education
One key step in how to become a mortgage originator is to complete courses as required by the NMLS. Applicants are required to take 20 hours of pre-licensure education courses, including the following:
- Three hours of Federal law and regulations
- Three hours of ethics that shall include instruction on fraud, consumer protection, and fair lending issues
- Two hours of training related to lending standards for the nontraditional mortgage product market
- Twelve hours of undefined instruction on mortgage origination
In addition to this, each state has specific requirements for education, typically on state-specific topics. This can range from education on alternative lending products like reverse mortgages, to how to spot red flags on a mortgage application.
Applicants should refer to their respective states’ guidelines on how to become a licensed mortgage loan officer.
SAFE MLO Testing
Applicants for MLO licensure are required to pass the SAFE MLO test with a score of at least 75%. The test evaluates candidates on their knowledge of state and federal mortgage lending law. Many states have adopted the Uniform State Test, which applicants only need to take once. This makes it easier for licensees to apply for licensure in other states.
Per SAFE Act requirements, there is a waiting period between retaking the SAFE MLO Test. On the first and second failures, applicants must wait for 30 days each between test retakes. If an individual fails the test three times, they must wait 180 days before taking the test again.
NMLS Requirements
Some other NMLS requirements include:
- Sponsorship: An individual’s MLO activities must be sponsored and supervised by their employer. State regulators must approve sponsorships.
- NMLS Unique Identifier: An NMLS Unique Identifier is a number permanently assigned to each company, branch, and individual with an NMLS account. This system was designed for better tracking each company and licensee, and is required to appear in all advertisements for mortgage origination services.
- Payment of fees: Applicants are required to pay fees to obtain licensure. The amount of these fees vary by state.
After You Get your Licensure
Once you receive your license, you can begin work as a home loan originator. Some MLOs work independently, but newbies often prefer to begin with an established business that has an existing client base, such as a bank, mortgage lending institution, or credit union.
With all the bureaucracy involved in the licensure process, it is important to keep your focus on the goal you had in mind when you first started looking into how to become a loan officer — helping people move into their dream homes.
Buying property can be a complicated and stressful process for your average person, but a qualified and supportive MLO can make the experience easier, allowing homebuyers to enjoy their investment with the knowledge they have secured the best home loan possible.
The work doesn’t end here, though. MLOs must keep up with professional development to keep their license and stay current with mortgage lending practices.
Maintaining Active Licensure
Once you have a license, you must meet the requirements to maintain active licensure status. An active status shows you meet all requirements of the federal registration process. You will need to renew your license annually, take continuing education courses, and keep all information filed with the NMLS up to date.
For instance, if you plan to switch and work for a new company, you have to inform the NMLS of this move. The NMLS website includes helpful resources for licensure renewal, including handbooks, checklists, and information on fees, deadlines, and other requirements.
Continuing Education
MLOs are required to complete eight hours of NMLS-approved continuing education annually to qualify for license renewal. It is the MLOs responsibility to complete this education and the renewal process. If you fail to do so, you could end up losing your license.
NMLS Continuing Education
Continuing education is required to include:
- Three hours of federal law and regulations
- Two hours of ethics instruction on fraud, consumer protection, and fair lending issues
- Two hours of training related to lending standards for the nontraditional mortgage product market
- One hour of undefined instruction on mortgage origination, which may be fulfilled by completing a state-specific course depending on the state’s requirements
- Keeping Up-to-Date NMLS Records
There are certain times when you are required to proactively alert the NMLS and update your records. This involves updating the NMLS on major changes, such as:
- Change of Employment: When you move to a different company and are now sponsored by a new company
- Arrest: Any legal troubles
- Bankruptcy: Major financial difficulties such as bankruptcy
- Get “The LO Down”
If you are interested in becoming an MLO, you will need to stay up to date on all of the most interesting happenings in the business!
Conclusion
At the start you wanted to know how a mortgage loan officer can help you save on your home acquisition and other relevant information. Having tackled that, you now know and can make informed decisions.
