As a Real Estate Agent, What Should You Be Aware of in the Mortgage Industry?
The mortgage and real estate industries go together like two peas in a pod. While real estate agents are in charge of finding, selling, and closing a property transaction, mortgage professionals assist in finding, selling, and closing a loan deal. In other words, your clients need both a real estate agent to find their perfect home and a mortgage professional to find their perfect mortgage loan. Since you’re a real estate professional, you already know how to find properties and field housing market questions, but what about the mortgage side of your transactions? In this article, we’ll break down what you need to know about mortgage and when to pull in a mortgage professional.
When to Involve a Mortgage Loan Originator
The homebuying process is exciting, and it’s natural to want to jump into helping your clients find their perfect home. However, you should make sure they have been in touch with a Mortgage Lender or Mortgage Loan Originator before you start planning house tours.
It is crucial for the buyer to understand their budget, what their credit score looks like, and how much of a down payment they are able to afford so they know their purchasing power and can get on their way to being approved for a loan. After all, no one likes falling in love with a property they can’t afford — so check in and refer your clients to a trusted mortgage professional if they haven’t found one yet. Once your client has been preapproved or approved for a home loan, you’ll be able to start searching for the property that fits all of their needs without breaking the bank.
Mortgage Industry Titles
Now that you know when to get a mortgage professional involved in your real estate transaction, you may be wondering to whom you should refer clients. There are a myriad of roles in the mortgage industry, so we’ll break them down for you. Some of those titles include:
- Mortgage Loan Originator: A Mortgage Loan Originator (MLO) is a financial professional who helps homebuyers with a mortgage application to acquire loans when purchasing property. This is the person to loop in when your clients haven’t yet sought preapproval for their loan. MLOs work closely with real estate agents, helping borrowers with the financial side of a property purchase. Mortgage Loan Originators are often employed by a bank or mortgage company.
- Mortgage Loan Officer: A Mortgage Loan Officer (also referred to as an MLO) works as a representative of a credit union, bank, or other financial institution. Additionally, they can help borrowers in the application process and assist consumers and small business owners with various secured and unsecured loans. Loan Officers are only able to offer products that their bank or financial institution has approved.
- Mortgage Broker: A Mortgage Broker acts as a middleman between the buyer and lender, and they must sell all originated loans on behalf of individuals or businesses. They sell mortgages through several investors or banks and operate on a commission and fee basis only. A Mortgage Broker will take a loan application and send it out to several financial institutions or mortgage companies, then choose the best offer. Mortgage Brokers are employed by a brokerage and not a bank, making them unable to approve or deny a loan.
- Underwriter: An Underwriter works for an insurance, investment, loan, or mortgage company. They assess everything from a client’s financial status to their health to determine if they should take on an applicant’s contract based on their calculated level of risk.
- Mortgage Banker: A Mortgage Banker is an individual, company, or institution that originates mortgages. Whether an individual or company, all Mortgage Bankers function the same. To bankroll mortgages, Mortgage Bankers use their own funds or funds borrowed from a warehouse lender. Once a mortgage is originated, a Mortgage Banker can retain the mortgage in a portfolio, or they may sell the mortgage to an investor or another financial institution.
- Mortgage Lender: A mortgage lender is either a mortgage bank or financial institution that offers and underwrites home loans. Using specific guidelines, lenders will verify your credit and ability to repay a loan. The lender will set the terms, interest rate, repayment schedule and other key aspects of your mortgage.
Types of Mortgage Loans
Mortgage professionals are always looking for the perfect loan for their clients. There are many different types of mortgage loans, so we’ve listed some of the most common loans you’ll see on a day-to-day basis below:
- Conventional Loan: These loans are not insured by the federal government, and there are two types: conforming and non-conforming.
- Conforming Conventional Loan: the amount of the loan falls within the maximum limits set by the Federal Housing Finance Agency (FHFA).
- Non-Conforming Conventional Loan: does not conform to the guidelines set by the Federal Housing Finance Agency.
- Jumbo Loan: A jumbo loan is a conventional mortgage loan with non-conforming loan limits, meaning that the home price exceeds federal loan limits.
- Government-Insured Loans: These loans are helpful when you do not qualify for a conventional loan.
- FHA Loans are backed by the U.S. Federal Housing Administration. They are available for homebuyers who don’t have enough for a down payment or perhaps don’t have a perfect credit score.
- USDA Loans are available to moderate- to low-income borrowers in eligible rural or suburban areas.
- VA Loans are available for active duty and veteran U.S. military members.
- Fixed-Rate Mortgage: This type of mortgage keeps the same interest rate throughout the entire life of the loan. Fixed-rate mortgages usually come in terms of 15, 20, or 30 years.
- Adjustable-Rate Mortgage: Interest rates for this type of mortgage can fluctuate with the market. Many adjustable-rate mortgages start off as fixed-rate mortgages for the first few years and then switch over to a higher rate.
Holding Multiple Licenses
Are you getting excited about the wonderful world of mortgage opportunities? It is possible to hold both an MLO license and a real estate license at the same time, with some agents simply holding their MLO license and others using it to supplement their real estate career. A single person does not usually act as the MLO and the real estate agent on a single transaction — and if they do, that fact must be disclosed. Most mortgage companies will not allow licensed real estate agents to act as the Mortgage Loan Originator for the same client in any loan transaction.
These regulations were put into place with the SAFE Act of 2008, along with rules that protect consumers and reduce fraud in the mortgage industry. Mortgage professionals stick to using one license at a time because a majority of mortgage buyers on the secondary mortgage market will not purchase closed loans of borrowers who were represented by someone acting as the real estate agent and Mortgage Loan Originator on the same transaction.
There are actually some instances where it is illegal to act as both an MLO and a real estate agent, including when the borrower is using an FHA loan. MLOs cannot originate FHA loans for their own real estate clients. Technically, an MLO is allowed to originate conventional, jumbo, or commercial loans, but you’ll have to disclose if you intend to act as both the MLO and the real estate agent on a single transaction. If your MLO company is separate from your real estate company, you’ll also need to provide affiliated business disclosure.
It is crucial for mortgage professionals and real estate agents to understand each other's industries as they work together often. With many different titles, loan options, and a fast-moving market, learning about the mortgage industry is particularly critical for real estate agents looking to best assist their clients. After all, the mortgage industry wouldn’t be what it is today without the real estate industry booming alongside it!
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