The 10 Players Involved in Creating a Mortgage Loan
Few people can afford to buy a home without borrowing a large part of the purchase price. That’s where a home mortgage loan helps you realize your dream of home ownership. But obtaining a home loan can be a very complex process, with a lot of different people and organizations involved, each playing a vital role in ensuring that all parties’ interests are protected.
Here is a list of the major players involved when you originate a loan to purchase a home (or when you refinance an existing home loan) and how they are compensated for their efforts.
REAL ESTATE AGENT(S)
Real estate agents are licensed to represent the interests of a buyer and seller in a real estate transaction. They receive a commission from the seller for successfully arranging a deal with a buyer.
This is you – the one who is agreeing to receiving a loan for the purpose of purchasing a home (or paying off an existing mortgage and replacing it with a new mortgage with a better rate or term – i.e., a refinance) and commits to repay the loan over time with interest.
A loan officer represents a lender and is tasked with finding the right loan product for a borrower. Your loan officer takes your mortgage application and serves as the liaison between you and the other entities involved in originating your loan. A loan officer is paid a percentage of the loan amount by the lender.
A mortgage broker, like the experts at CloseYour Mortgage, is similar to a loan officer, however a broker is not restricted to a single lender but has relationships with multiple lenders and is able to “shop around” on behalf of the borrower to make sure the borrower gets the best deal possible. Mortgage brokers are typically paid by the lender a percentage of the loan amount.
TITLE COMPANY/ESCROW COMPANY
The title company is responsible for researching any legal encumbrances of a property and providing a title insurance policy for the benefit of the homeowner and the lender. In most cases, the title company will also serve as the escrow company, serving as the intermediary between all parties involved in the transaction to ensure monies are transferred only after all requirements are met. The title company receives compensation in the form of a one-time fee, as well as a profit margin for issuing the title insurance policy, paid by the borrower.
When a lender agrees to lend you money for a home, that lender will need documented and reasonable assurance that the collateral for the loan (your home) has sufficient value to repay the loan in the case of default. An appraiser is a licensed independent professional that will examine the features, location and marketability of a home in great detail in order to arrive at a fair-market estimate of the home’s value. The appraiser is paid a one-time fee by the borrower.
A home inspector will examine your home’s physical structure and determine the home’s fitness of use and whether there are any underlying defects that will be necessary to correct. Home inspectors are typically paid by the borrower a one-time fee.
CREDIT REPORTING AGENCY
Lenders will require that each borrower submit to a credit examination from one of their preferred agencies. These agencies will utilize a specific FICO score algorithm that best represents the lender’s interests to arrive at a composite FICO score. While a minimum FICO score is required to obtain a loan, borrowers with higher FICO scores will typically be rewarded with pricing discounts for their loan. Borrowers will pay a one-time fee to have their credit report generated.
The mortgage lender is the entity that will agree to lend a borrower money to be repaid over time with interest, using the borrower’s home as collateral. The lender is the primary player in the mortgage loan process as all lender requirements must be met before a loan can be funded. Lenders receive compensation in several ways, including discount points for “buying down” to a lower rate, collecting the interest payments on a loan, fees for servicing the monthly payment processes on a loan and selling the loan on the secondary market to fund additional new loans.
The final step in a new loan, once the loan has been funded the title company will present all necessary signed documents from closing to the appropriate government agency for official recording on the public record. The county recorder collects a small fee for each document processed, which the title company received from the borrower at closing.
For most people, a mortgage loan is the largest and most significant financial commitment they will make. In order to ensure that everyone’s interests are protected, many professionals with different areas of expertise must work together to help you achieve your dream of home ownership.