Before buying a home, you will need to choose your team. This starts with your real estate agent. But your mortgage loan officer can be almost as important to the project. They can advise you on refinancing or home equity loans if you already own a home. Once you have a loan expert you can trust and depend on, you will rely on that person for years.
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Don’t have that relationship established already? How do you know who to go to for this important financial responsibility? Maybe you’ve already received recommendations from friends and family. Perhaps your realtor gave you a list of names you should call. A personal recommendation is one of the best ways to choose your loan officer. However, you should also look at the companies they work for. For example, do they work for a full service bank or a mortgage company?
Definition of Bank and Mortgage Company
Full service banks are known as federally chartered financial institutions. They offer mortgage loans along with other banking products like checking and savings accounts and business and commercial loans. Many also offer investment and insurance products. Mortgage loans are simply one aspect of their business. The Federal Deposit Insurance Company (FDIC) regulates and audits full service banks. On the other hand, individual states regulate mortgage companies, and more stringently as well.
Mortgage Loan Originators
Mortgage loan originators go through very difference processes between federally chartered banks and mortgage companies. To be a loan originator at a bank, one needs to register with the National Mortgage Licensing System (NMLS). They also must be fingerprinted and checked for any criminal background. Anyone with a history of financial crime such as fraud cannot practice mortgage origination. However, the FDIC does not require the loan originator to demonstrate any specific knowledge of mortgage practices or programs.
To work at a mortgage company, however, a loan originator needs extensive training. They must pass two examinations: a national exam and an exam for each state in which they want to practice. These tests stress an understanding of the business and consumer protection laws. Once a loan originator obtains a state license, they must renew each one annually.
Due to the scope of a bank’s financial activities, most banks service most of their mortgage loans. So after your loan closes, you will still make monthly payments to the same bank that originated the loan. Many see this as an advantage to using a full service bank. However, your lender may sell your loan to another institution after closing. If this happens to you, don’t worry. The loan documents you signed with your original lender are legally binding for the life of the loan. A loan servicer cannot change the interest rate, fees or any other aspect of the loan.
Mortgage Company Advantages
There are some specific advantages to using a mortgage company for your loan. First, they probably have access to a wider range of loan products than does a full service bank. Banks structure their own loan programs within guidelines set by Fannie Mae, Freddie Mac, FHA and VA. But if your situation does not fit within their criteria, they will decline your loan.
Mortgage companies sell the servicing. This way, they have access to loan programs that are structured and offered by a variety of loan servicers, usually big national banks. Unlike a mortgage “broker,” the mortgage company still closes and funds the loan directly. Because these companies only service mortgage loans, they can streamline their process much better than a bank. This is a great advantage, meaning your loan can close quicker.
In a competitive real estate environment, the ability to close a loan on time is vital. The other advantage to fast closings is that rates and fees are cheaper for shorter rate lock terms.
So which do you choose? A full service bank ensures your loan will stay with the same company for the entire term. Do be sure to make sure that the bank does service their own loans. On the other hand, a mortgage company can offer fast closings, product availability, and loan originator expertise. However, the individual is often the most important aspect of home loans. Both kinds of companies have fantastic and knowledgeable loan originators.
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