When you're getting ready to buy a home, one of the key people you will be dealing with is a mortgage banker. A mortgage banker is an essential part of the homebuying process due to their role in providing the funding required for your mortgage.
What is a mortgage banker?
A mortgage banker is an individual or institution that provides the funding for a home loan. Mortgage bankers can be either private or institutional lenders, and they can either use their own funds or funds borrowed from another source to back the loan, depending on how the loan is set up.
In short, mortgage bankers originate, or start, home loans. In some cases, the originating entity may keep the loan active on its own books, allowing the borrower to make payments directly to them. In other cases, the mortgage banker may sell the rights to the loan to a third party, which would then take over holding the loan.
What does a mortgage banker do?
A mortgage banker may fulfill several important tasks during the home-buying process, depending on the services you need. These may include:
Determining whether to offer a loan
The primary role of a mortgage banker is to decide whether or not to offer a mortgage loan to a specific buyer. Mortgage bankers have several specific criteria that must be met to approve a loan. Banks and other institutions often have complicated approval processes in place that will clearly lay out what the buyer must do or have in order to be approved. Private mortgage bankers, however, have a little more freedom when it comes to determining whether they’ll issue a loan.
The mortgage banker will also need to determine what type of loan to offer to specific buyers. While some mortgage bankers only offer a single type of loan, others offer a wide range of options. The options a buyer qualifies for can depend on multiple factors, including:
- The buyer's credit score
- The buyer's debt-to-income ratio
- The price of the home
- The buyer’s down payment amount
A mortgage banker look over those factors to determine if a buyer is qualified for a fixed-rate loan or an adjustable-rate mortgage, if they will need a government-insured loan due to poor credit or a low down payment, or if they qualify for a VA loan for a home purchase.
Originating the loan
Once the buyer has applied for the loan, the mortgage banker begins the loan process. "Originating the loan" means qualifying and verifying the buyer's right to that loan. It starts with processing the buyer's application and determining how much money the institution might offer that buyer. While many homebuyers receive preapproval for a loan before they even decide what home they want to purchase, that doesn’t necessarily mean that buyers will ultimately be approved for that loan. Approval will depend on factors such as the home’s appraisal value or if there has been a change in the borrower’s credit score, employment status, or financial position. Changes in lender guidelines may also cause the loan to be denied. Taking out other major loans, like a car loan, between preapproval and loan processing can also interfere with the loan the buyer receives.
Originating the loan also means processing the loan paperwork and distributing the funds from the mortgage.
Servicing the loan
In some cases, mortgage bankers will hold the loan themselves. They’ll accept your payments each month and let you know if there are any problems with those payments. Throughout the loan's duration, the mortgage banker will also be responsible for handling any problems that come up, as well as helping you negotiate if for some reason you can’t make payments on time.
Selling the loan
Up to 80% of mortgage loans are sold, rather than the initial banker choosing to service the loan themselves. Another lender, either public or private, could choose to purchase the loan and take over the servicing of that loan. The party that buys the loan would then take over receiving payments and dealing with any problems that might arise during the loan-servicing process.
Mortgage bankers might decide to sell a loan for a variety of reasons. Most commonly, they’ll sell the loan to free up capital to offer future loans to other individuals. They might also sell the loan because they realize it has not turned out to be a good risk and they want to pass it on to someone else, or because they don’t want to take responsibility for servicing it.
What is the difference between a mortgage banker and a mortgage broker?
When you're getting ready to buy a home, you may wonder about the difference between a mortgage banker and a mortgage broker and which one you need.
A mortgage banker loans out the money for a mortgage, while a mortgage broker doesn’t distribute loans directly. Rather, a mortgage broker works with multiple lenders to connect buyers with the bank or institution they need to get a loan for their mortgage. Mortgage brokers will generally charge a fee for connecting buyers with lenders. They may have insights into various mortgage bankers' requirements, strategies and loan rates, which can make it easier for buyers to choose the one that fits their needs.
Do you need a mortgage banker?
If you plan to buy a property and you need to take out a loan to do so, a mortgage banker can originate that loan and provide you with the funds for your home purchase. Choosing the right mortgage banker can make a big difference in how much you end up paying for your new home, so take the time to do your research.