A loan originator is more than just a source of funding when you buy a home or refinance. A good originator can provide valuable advice, identify loan programs that fit your needs, and help you secure a low rate.
For the best experience possible, find the right partner and treat the relationship as more than just a necessary step in a loan transaction.
What Does a Loan Originator Do?
An originator works with borrowers to evaluate loans and helps to ensure that the loan gets funded when needed. To do so, loan originators find lender programs that match the borrower’s situation, and they guide applicants through the process. They help clients gather information needed to close a loan, verify that information, and coordinate when any questions come up during underwriting.
If you’re in the market for a loan—or you will be within the next few years—learn about the services and options available to you. Starting the conversation early allows you to find the right lender, avoid pitfalls, and make other financial moves that help you qualify.
Often there is a loan origination fee that you also must pay.
Loan Originators Learn Your Needs and Circumstances
A good loan originator should ask plenty of questions. To find the right loan and get you the best rate, they’ll need to know as much as possible. These factors will need to be considered:
Your Employment Situation: Loan originators need an understanding of your income. If you’re a W2 employee, things are relatively simple. But your work history, bonus income, and other factors can complicate matters. For self-employed individuals or those who work as independent contractors, it’s especially important to discuss the details of your employment—how long you’ve been in business, the types of deductions you use, and more.
The Property You’re Buying: Depending on what you’re buying, your loan options may be limited. It’s essential to discuss the details of any property you have in mind with your lender. For example, condos with certain characteristics might not be eligible for some loan programs—but other options are always available. If you don’t have a specific property picked out, just let your loan originator know what you’re looking for.
Loan Originators Know Your Loan Options
You may have numerous loan programs available to choose from, and a skilled originator will fit all of the puzzle pieces together to find the loan you need. Your options depend on:
- Your credit history and income
- The size of down payment you plan to make
- Where you live and the type of property you’re buying
- Your status as a servicemember
- Your existing debt and monthly payments
Detailed Pros and Cons
A good loan originator knows which loans fit different borrowers, and the best originators help you understand how your decisions affect your finances. They’ll present multiple loan options and discuss the pros and cons of each one, allowing you to choose what’s right for you.
An illustrative example comes from Lynn Whipple, a licensed loan originator in Montrose, Colorado. As she explains, government programs like FHA loans allow for down payments as low as 3.5%, but a payment that low requires that you pay a monthly mortgage insurance premium for the life of the loan.
On a 30-year loan, those insurance costs are significant. Other conventional programs allow you to make a similar down payment—so you’d still have to pay private mortgage insurance—but you can cancel the insurance once you build sufficient equity in your home.
Which option is best? It depends on your situation and your preferences. After learning about your needs, a loan originator can provide detailed projections to help you decide which route to take. You’ll know exactly what your monthly payment, interest costs, and insurance costs look like for the property you’re borrowing against. Instead of guessing which program is best, you can see everything in dollars and cents, month by month. “The numbers help,” says Whipple.
How to Find a Good Originator
You’ll have the best borrowing experience if you work with a helpful, reliable, and honest loan originator. To find one, ask friends, family, and trusted professionals who they recommend. Real estate agents typically have experience with local loan originators, so they know who makes life easy—and who doesn’t.
Be wary of anybody who doesn’t treat your inquiries seriously or who is quick to promise that everything will work out fine. As Whipple notes, “surprises are never good” in the lending world. Indeed, you don’t want to pack up and move out of your existing home only to find out that there’s a problem with your financing. Originators should be proactive and keep you informed throughout the application process.
It’s wise to shop around, and you can find loans from a variety of sources.
Traditional banks and credit unions typically offer home loans through loan officers on staff. They may have a somewhat limited offering, but you may find what you need. You might also get low rates and fees if you have significant deposits at those institutions.
Mortgage brokers shop among numerous lenders instead of affiliating with any particular institution. With brokers, there may be more room to negotiate fees. However, the ultimate lending decision is far removed from the broker you form a relationship with.
Independent lenders come in various forms. They may fund their own loans and use local branches and local underwriters, or they may operate entirely online. These lenders have gained market share in recent years and have a reputation for closing loans quickly, which may help if you’re on a short timeline.
Terminology and titles can be confusing, so ask how potential lenders work. Also, it’s possible for a lender to work in several ways: offering direct, private loans, as well as brokering loans or providing access to funding from banks.