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Hierarchies are everywhere, including in the mortgage world. Many people have a subordinate mortgage in the form of a home equity line of credit or home equity loan.

A subordinate mortgage is secured by your property but sits in second position, if you have a primary mortgage, for getting paid in the event you default.

Note: SoFi does not offer subordinate mortgages at this time. However, SoFi does offer mortgage refinancing loan options.

Here’s what you need to know about subordination and why it matters.

What Is Mortgage Subordination?

Mortgage subordination is the process of ranking debts tied to your home in the order that they need to be paid in the event of a foreclosure. Whichever mortgage lien is recorded first usually has higher priority than those that are recorded later, but depending on state law, property tax liens, HOA “super liens,” and mechanic’s liens may have priority over previously recorded liens.

After a foreclosure, a second mortgage is only paid if there are funds left over after paying the primary mortgage.

Lenders that make second mortgages — also called junior mortgages, second liens, or junior liens — typically allow borrowers to tap only a portion of their home equity to help ensure that they will get paid in the event of a foreclosure.

And a subordinate mortgage represents a higher risk to the lender, so borrowers will likely see higher rates.

Recommended: Understanding Mortgage Basics

What Are Mortgage Subordination Clauses?

A mortgage subordination clause is typically included in the legal documents of the primary mortgage holder.

The subordination mortgage clause states that all other loans made using the property as collateral are subordinate to the primary mortgage, now and in the future.

What Is a Subordinate Lien?

A lien is a claim against your property. Generally, there are voluntary mortgage liens, such as mortgages you take out, and involuntary liens, like judgment, tax, HOA, and mechanic’s liens.

A subordinate lien is a claim against your property that usually can only be paid after the primary lien has been paid.

How Does a Mortgage Become Subordinate?

When a mortgage is subordinate to another, it simply means that the lender of the subordinate mortgage will get paid only after the senior lienholder is paid.

Again, mortgages are typically ranked in the order they are originated and recorded in county land records. The primary mortgage is first, and a second mortgage is subordinate because it came after.

If a property is refinanced, the situation changes.

Subordinate Mortgages and Refinancing

If a homeowner has two mortgage loans and wants to refinance the first mortgage, most refinancing lenders will ask the second mortgage lender to sign a subordination agreement to stay in second position after the refinance.

If the second lienholder balks at subordinating that loan, you may have enough equity to apply for a cash-out refinance and use the extra money to pay off the second mortgage. Or you could pay off the second mortgage with cash on hand.

This mortgage calculator can help you run the numbers to see if refinancing is right for you.

Recommended: What Are the Different Types of Mortgage Loans?

Subordinate Mortgage Loan Modification

Loan modification is a mortgage relief program in which the terms of the loan are changed so that the homeowner can better meet the monthly payment requirement.

Homeowners who anticipate a permanent change in finances, or are exiting mortgage forbearance but don’t qualify for refinancing, can ask for mortgage modification.

If you have a HELOC or home equity loan and you’re struggling to make the payments, the lender may be willing to modify the credit line or loan: lowering the rate, extending your repayment term, or reducing your principal balance.

The Takeaway

Though lenders are more concerned about subordinate mortgages than you may be, you may want to know how second mortgages and other liens may affect refinancing your primary mortgage.

Whether you want to refinance or you are shopping for a mortgage, SoFi is here to help.

SoFi offers a range of home mortgage loan options and competitive rates to meet your needs. Knowledgeable loan officers will guide you.

FAQ

What type of mortgage is subordinate?

If a homeowner has a first mortgage, home equity lines of credit and home equity loans are examples of subordinate loans. They will be paid second in the event of a foreclosure or cash sale.

Is a subordinate mortgage a second mortgage?

Yes. A second mortgage is a subordinate mortgage because it came after the primary mortgage.

What is subordinate financing?

Subordinate financing is a junior loan secured by an asset that can be sold if the loan is unpaid for a specified amount of time. Interest rates and terms can be more favorable than those of unsecured loans but not as favorable as those for a first mortgage.

How long does it take to subordinate a loan?

On primary loans, subordination is included in the contract. On a subsequent refinance when there is a junior (or subordinate) mortgage, the amount of time it will take to reach a subordination agreement will depend on the lenders involved, but it can often be done in 25 business days.

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Photo credit: iStock/wutwhanfoto

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Mortgage life insurance, aka mortgage protection insurance, covers the balance owed on your home loan in the event of your death.

It’s meant to protect your loved ones from having to worry about monthly mortgage payments or being forced to move if they can’t continue making payments.

Whether you might need mortgage life insurance depends on your health history, whether you’re the sole earner for your family, and whether you already have a traditional life insurance policy.

How Does Mortgage Life Insurance Work?

Unlike standard life insurance, mortgage life insurance is designed to pay a death benefit (typically the mortgage balance) to the lender rather than to heirs. The lender pays off the mortgage.

The length of the policy will be the mortgage term.

Mortgage life insurance is usually structured to match the declining balance on your mortgage and expires after your home is paid off. Depending on your age and mortgage size, the cost can be hundreds of dollars a month.

By contrast, term life insurance lasts for a set number of years and will pay a death benefit during that time to designated beneficiaries, who can use the lump sum however they want to. Term life tends to be the most affordable kind of life insurance.

A term life insurance policy will charge fixed premiums for 10 to 30 years. Mortgage life insurance premiums may be fixed for only five years.

(By the way, mortgage life insurance is a totally different animal than private mortgage insurance. PMI is insurance you typically must purchase if you put less than 20% down on a conventional loan.)

Different Options for Mortgage Life Insurance

There are a few variations on how mortgage protection insurance can be structured. Here’s how the most common ones function.

Decreasing Mortgage Principal

A decreasing mortgage principal policy ties the payout benefit directly to the outstanding mortgage principal balance.

The policy payout will automatically account for the declining balance as you pay off your home loan over time, along with any extra payments you make.

This is the most common type of mortgage insurance policy.

Level

A level payout policy keeps the death benefit at the same amount over the term of the mortgage loan, no matter how much has been paid off. This means that any payments or prepayments of principal have no effect on the death benefit.

Because these mortgage insurance policies are structured more like traditional life insurance policies, they sometimes allow for the direct payout of excess benefits to beneficiaries.

Recommended: Home Loan Help Center Is There to Inform

Mortgage Life Insurance Advantages

If you’re the sole breadwinner for your family, you might want to consider upsides of mortgage life insurance.

No Medical Exam

Unlike traditional life insurance, mortgage life insurance sellers don’t require a medical exam. This can help people qualify for mortgage life insurance when they might be rejected for traditional life insurance or find the quoted premiums too high.

You Can Add Riders

Home mortgage life insurance policies often allow you to tack on riders. A living benefits rider will allow you to directly access your policy’s benefits as a source of funds in the event you’re diagnosed with a terminal illness. This can be especially helpful when health insurance might fall short.

Another common add-on is a “return of premium” rider, which calls for returning a set amount of premiums paid if the policy ends without ever being used.

Many of these riders are also available for most term life insurance policies.

Mortgage Life Insurance Drawbacks

If you’re in good health or prefer benefit payouts with no strings attached, you may want to give thought to some drawbacks of mortgage life insurance.

Expensive for Healthy Homeowners

Individuals who are in good health won’t be able to benefit from a cheaper rate on their mortgage life insurance policy. That’s because insurers do not factor medical exams into their premium calculation.

The lack of a medical exam means insurers must cover all their bases: People with a poor health history and those in good health will pay the same rates.

Decreasing Payout

While your monthly mortgage life insurance premiums will remain constant, the potential payout benefit will continue to decrease as you pay down your mortgage over time.

If there’s no mortgage left, there’s no payoff. Ouch.

The only way around this is to apply for a mortgage insurance policy with a level payout benefit, which ensures that the payout remains the same regardless of how much time is left on your mortgage. This may be more expensive than a typical decreasing mortgage balance policy.

No Flexibility

Mortgage life insurance policies pay out to the mortgage lender. Your loved ones won’t see any cash during this transaction, which isn’t ideal if you’d like them to have the money for other purposes like day-to-day living costs, college costs, or investing.

If flexibility of use for any benefit payout is important, you may be better served by traditional life insurance.

Difficult to Get Quotes

It’s hard to gather quotes for mortgage life insurance online, unlike other kinds of insurance. That’s a concern because prices can vary widely.

Recommended: How to Shop for a Mortgage

Is Mortgage Life Insurance a Good Idea?

Unless you’re having difficulty qualifying for a reasonable rate on a traditional life insurance policy because of poor health, term life insurance is likely to have lower premiums than mortgage life insurance and will provide a direct payout to beneficiaries.

For some homeowners, the benefit payout to the lender, not heirs, will be a dealbreaker. Others may be willing to accept this restriction because they either have health conditions that make it difficult to qualify for traditional life insurance or because they want to ensure that the payout is dedicated toward housing payments or, in a sense, mortgage relief.

You also may want to learn about putting your house in a trust, to protect your home if you become incapacitated and to avoid the probate process.

The Takeaway

Mortgage life insurance ensures that your mortgage will be paid off if you die. If mortgage protection insurance isn’t your cup of tea, it could be worth looking into term life insurance to protect your loved ones.

While responsibility is on your mind and you’re hunting and gathering mortgage minutiae, look into a SoFi Home Loan or Refinance, or a SoFi-brokered home equity line of credit.

SoFi offers an array of mortgage home loan advantages. Click, scroll, and prepare to be impressed.

FAQ

Does mortgage life insurance pay off the mortgage?

Yes. Mortgage life insurance offers enough coverage to pay off your mortgage if you were to die.

Is mortgage life insurance the same thing as mortgage protection insurance?

Yes. Most policies only pay out when the policyholder dies, but a few also cover a post-accident disability or a temporary job loss.

When is mortgage life insurance a good idea?

Mortgage life insurance could be a good idea for homeowners whose health conditions keep them from qualifying for term life insurance.

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Photo credit: iStock/Inside Creative House

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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A hard money loan is a nontraditional, secured loan provided by an investor to a buyer of a “hard asset,” usually real estate, whose creditworthiness is less important than the value of the asset.

Hard money loans are more common for real estate investments — purchasing a rental property or flipping a house, for instance — and can get you money quickly.

Individual investors or investment firms offer these loans. They typically have high interest rates and short repayment terms and can be risky.

Note: SoFi does not offer hard money loans at this time.

Common Reasons to Get a Hard Money Loan

People typically look for hard money loans when they are interested in investing in real estate that needs repairs.

Amateur real estate investors who may not have another way of securing financing — or who may just need money fast — rely on hard money loans for:

•   Purchasing real estate to fix up and rent out

•   Buying a home to upgrade and flip for a profit

Business owners sometimes take out hard money loans to purchase commercial real estate as they expand their business.

Finally, some homeowners with poor credit but equity in a home may apply for a hard money loan to avoid foreclosure.

Recommended: How to Buy a Foreclosed Home

How to Get a Hard Money Loan

Unlike lenders of personal loans or traditional mortgage loans, hard money lenders aren’t all that interested in your credit scores. Instead, they care about the value of the investment — if you default on the loan, they’ll have made money on the interest and have legal claim to the investment.

That makes getting a hard money loan easier than a traditional loan. But how do you find hard money lenders if they’re not traditional direct lenders? Finding them could be as simple as asking a real estate agent or an industry friend (like another local landlord or house flipper) for a recommendation.

Hard money lenders are also online and accessed through mortgage brokers. It’s always a good idea to find trusted reviews of a lender before signing.

Recommended: Step-by-Step Mortgage Process

Hard Money Loan Requirements

Hard money lenders are less concerned about your credit scores than traditional lenders are, though they may check your credit and verify your income. Instead, there are three basic hard money requirements:

A Valuable Asset

The investment firms and financing companies that grant hard money loans are mainly interested in the value of the investment itself. A hard money loan is based on the after-repair value of a property.

Experience

Hard money lenders may want to know that you’re capable of completing the renovations you’re envisioning for your rental property or house flip. Being able to provide a portfolio of previous work may help your cause.

A Large Down Payment

Typically, hard money lenders require a down payment of 20% to 35%.

Hard Money Loan Rates and Terms

Hard money loans come with higher interest rates and shorter terms than traditional mortgage loans. This can make them higher risk for some borrowers.

•   Rates: Interest rates can range from 8% to 15%. This is higher than the typical 30-year fixed-rate mortgage.

•   Terms: In general, hard money loans come with short repayment periods. While most homebuyers choose a mortgage term of 30 years, hard money loans are often for six months to three years.

Recommended: How Rising Inflation Affects Mortgage Interest Rates

Pros and Cons of Hard Money Loans

So what are the advantages and disadvantages of hard money loans? Let’s break it down in easy terms:

Pros	Cons
Fast funding	High interest rates
Fair credit usually OK	Short repayment terms
Less stringent underwriting process	Large down payment
Easy way to start investing	Can’t work with traditional lenders

Hard Money Loan Alternatives

Hard money loans aren’t your only option if you want to start investing in real estate, though the condition of the property will be a factor, as will the size: Any multifamily property of five or more units requires commercial financing.

It’s important to consider every avenue and understand how it will affect your finances and the likelihood of getting an offer approved.

Traditional Mortgage

Properties that need structural repairs usually do not qualify for a conventional loan, but otherwise it could be possible to use a residential conventional loan for a property with up to four units if one unit will be owner occupied for at least a year.

The same is true for qualified borrowers of an FHA loan or VA loan.

Banks, credit unions, and mortgage companies also may offer commercial real estate loans to qualified borrowers.

Home Equity Loan or Cash-Out Refi

If you have significant equity in your home, you may be able to purchase an investment property by tapping your home equity with a home equity loan, home equity line of credit (HELOC), or cash-out refinance. Interest rates are typically lower, but your personal home serves as the collateral on the loan.

Personal Loan

Depending on the cost of the investment property, you may be able to cover the price with an unsecured personal loan — or a personal loan and cash reserves you may have.

Borrowers, depending on their credit score, may be able to secure financing for a lower rate than they’d get with a hard money loan.

A home improvement loan could also come in handy if you qualify.

The Takeaway

Hard money loans offer fast funding and don’t require a strong credit score, making them tempting for investment properties. But these loans — which are not available through traditional lenders — typically have high interest rates and short terms.

FAQ

What is a hard money loan example?

Borrowers often seek out hard money loans for real estate investments. They may be interested in renovating a property to rent out or they may want to do a quick upgrade or more extensive rehab, then flip the home for a profit.

What are typical terms for a hard money loan?

Hard money loans typically require a down payment of 20% to 35%, come with an interest rate of 8% to 15%, and must be paid off within six months to a few years. This makes them high risk for some borrowers, but the fast funding and de-emphasis on credit history can be appealing.

Do hard money lenders run your credit?

Some hard money lenders may check your credit and verify your income, but in general, they are not as concerned with your credit scores as a traditional lender is. Instead, they want to see a large down payment, a history with rental properties, and an asset worth investing in, which serves as collateral for the loan.

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Photo credit: iStock/Prostock-Studio

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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An amortizing loan requires monthly payments that go toward the principal and interest for a set period of time. In the early years, payments go mostly toward the loan interest.

Amortizing loans are common in personal finance. If you have a home loan, auto loan, personal loan, or student loan, you likely have an amortizing loan.

Understanding how your amortizing loan works could be helpful if you’re thinking of refinancing, selling a car or house early, or getting rid of mortgage insurance.

This article covers:

•   What is an amortizing loan?

•   How does a fully amortizing loan work?

•   Types of amortizing loans.

•   Amortization schedules and calculators.

What Is an Amortizing Loan?

An amortizing loan is one in which the borrower makes monthly payments, usually equal, toward the loan principal (amount borrowed) and interest (the financing charge).

An amortization schedule shows borrowers how their payments are spread out over the full term of the loan. This mortgage calculator shows amortization over time for any given loan value.

Typically, early payments are largely directed at the interest, and later payments go toward the principal. Borrowers who make additional payments on the principal, especially early in the loan, can shave time off their repayment schedule and save on total interest paid.

Recommended: How to Pay Off a 30-Year Mortgage in 15 Years

How Does a Fully Amortizing Loan Work?

Borrowers who make payments on a fully amortizing loan consistently and on time can expect their loan to be paid off in the number of months or years originally discussed when taking out the loan.

Mortgage servicers use a complicated calculation to determine how much interest and principal you will pay at each stage of the loan in order to fully pay it off as scheduled.

While it’s not important for borrowers to understand the intricacies of the math, it is important to know that early payments largely cover the calculated interest and that payments closer to the end of the loan term will go more toward the principal.

Most lenders will provide an amortization schedule so you can track how the ratio of interest to principal changes over time.

Types of Amortizing Loans

Installment loans are typically considered amortizing loans. If you make a monthly installment to pay down a fixed amount of debt by a certain time period, you likely have an amortizing loan.

Mortgages

Most home loans — fixed-rate or adjustable-rate mortgages — are fully amortizing loans.

If you have a fixed-rate mortgage, you will make fixed monthly payments, whose principal and interest composition will change over the life of the loan. (Note that payments can fluctuate slightly based on homeowners insurance, changing property taxes, and the presence of mortgage insurance.)

With an adjustable-rate mortgage (ARM), you don’t have a complete amortization schedule to review upfront. Principal and interest amounts change at the end of the loan’s fixed-rate introductory period and every time the rate adjusts — once a year in the case of a 5/1 ARM. But the monthly payments are calculated to pay off the loan at the end of the term, which is usually 30 years.

Non-amortizing mortgages include interest-only loans and balloon mortgages: The principal does not get paid until the loan is due. Most lenders don’t offer non-amortizing mortgages.

Recommended: Guide to the Mortgage Loan Process

Auto Loans

A car loan is another type of amortizing loan. Terms are shorter than those of mortgages (which are commonly 30-year loans). With a mortgage, the loan is backed by the house; with an auto loan, the car that you are financing acts as the collateral.

Personal Loans

Borrowers take out personal loans for a variety of reasons: debt consolidation, emergency payments, or home improvements.

And for some, a dream wedding or vacation.

Because these are installment loans, they are considered amortizing loans.

Student Loans

Because student loans are not revolving — you borrowed a lump sum that you’re now making regular payments on — student loans are installment loans, and amortizing loans.

How does student loan amortization work? As with mortgages and auto loans, student borrowers pay more in interest at the start of the loan repayment term; in fact, some borrowers are only paying interest when they start repayment. Over the life of the loan, the balance will shift, and borrowers’ payments will largely be directed to the outstanding principal balance.

What Is an Amortization Schedule?

Lenders may provide borrowers with an amortization schedule, often in the closing paperwork for a house or car but also usually online in the loan account platform. The schedule, displayed as a table, demonstrates how your monthly payments are split between interest and principal over the life of your loan.

An amortization schedule typically shows you:

•   Month: Each month over the life of a loan appears as a table row. A 30-year mortgage will have 360 rows. These tables can get long!

•   Payment details: You’ll typically see how much your monthly payment is, but more specifically, the interest payment and the principal payment. This helps you to track how each changes over time.

•   Balance: This column shows what your remaining balance will look like after each monthly payment.

Your amortization schedule will include information about the amount borrowed, the terms of the loan, and the interest rate.

Your lender may also provide a helpful column that demonstrates how additional payments on your principal balance can affect your remaining payments.

Recommended: Historical 30-Year Fixed-Rate Mortgage Trends

How to Use an Amortization Calculator

Because amortization calculations can be difficult to understand, you may find it helpful to use an online amortization calculator, especially for a home or auto loan. Such calculators can help you visualize:

•   How much money you’ll spend in interest over the life of a loan

•   When you’ll hit important milestones, like 20% paid off for a home loan (that’s when you can typically ask to drop private mortgage insurance)

•   How different interest rates and loan terms can affect your payments (important if considering refinancing)

•   How additional principal-only payments can affect your loan

Again, this mortgage calculator includes a handy-dandy amortization chart. Move your cursor over it to see the breakdown of principal, interest, and remaining loan balance over time.

What You Need to Know About Your Amortizing Loan

Since amortizing loans usually generate fixed monthly payments over the life of the loan, you may feel like it’s something you don’t need to think about. You can simply put the loan on autopay for years and never give it a second thought. But there are several reasons you might want to think twice about your amortizing loan:

Refinancing

If you’re looking for a faster payoff or better interest rate, you may want to refinance your mortgage, auto loan, or student loans. Comparing your current amortization schedule with a proposed schedule with your new rate and terms can help you see if refinancing will actually save you money in the long run.

Short-Term Purchases

If you’re planning to buy a home but know you won’t live in it for long, it’s a good idea to review an amortization schedule (even if it’s an online estimate!) before making an offer.

Since you pay significantly more toward interest than principal at the beginning of most long-term loans, you won’t immediately build significant equity — and if you sell just a couple of years later, you may owe more than you make from the sale.

Recommended: How Rising Inflation Affects Mortgage Interest Rates

Mortgage Insurance

Borrowers usually must purchase private mortgage insurance if they do not put 20% down on a conventional loan. Once you have reached 20% equity, you can ask to have the mortgage insurance removed, reducing your monthly payment. (PMI is automatically terminated when a borrower has gained 22% equity — reaches 78% loan-to-value — and payments are current, or when the loan term has hit its midpoint.)

By using an amortization schedule, you can track when you’ll hit 20%. You may even want to make additional principal payments to reach that date earlier, thus saving you money over the life of the loan.

The Takeaway

With an amortizing loan, borrowers make regular payments consisting of principal and interest over a set number of years. In the early years, borrowers pay more toward the interest, but the balance shifts toward the principal over time.

Are you gearing up to find your dream home? SoFi offers fixed-rate home mortgage loans, with as little as 3% down for qualifying first-time buyers.

Find your rate on a SoFi Mortgage with no obligation.

FAQ

What is amortization in a loan?

Amortization refers to a loan with regular monthly payments over the duration of that loan. Typically, the vast majority of initial payments goes toward the interest of the loan, with a small amount (if any) going toward the principal balance. Over time, payments are more significantly directed toward the principal balance.

What are amortized loan examples?

Amortized loans are common in everyday life. Examples of fully amortizing loans are mortgages, auto loans, personal loans, and student loans.

Can you pay off an amortized loan early?

You can pay off an amortized loan early. For a mortgage, it may be possible to schedule automatic principal-only payments in your lender’s platform; you may also be able to make manual one-time principal-only payments or request a full payoff quote. With shorter-term loans, like personal loans and auto loans, it is possible to pay off the loan early to save money on interest — but it might be better for your credit score to keep the loans open.

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Photo credit: iStock/nd3000

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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A mortgage loan officer helps borrowers determine if they qualify for a home loan, and, if so, find the right type of mortgage and best interest rate and terms for them.

Throughout the home-buying process, your mortgage loan officer will review your information, collect necessary documentation, and track important milestones leading up to closing.

Mortgage loan officers, also called mortgage loan originators, typically work for a specific bank, credit union, or mortgage company.

In this piece, we’ll discuss:

•   What a mortgage loan officer is and does

•   How to find a mortgage loan originator

•   The differences between a mortgage broker and a loan officer

•   The qualifications of a mortgage loan officer

What Is a Mortgage Loan Officer?

The mortgage loan process can be nerve-wracking, even if it’s not your first go-around.

A mortgage loan officer serves as a guide. This individual, sometimes licensed and certified, helps potential homebuyers determine if they qualify for a loan and, if so, which type of home loan is right for them.

A mortgage loan officer is a type of mortgage loan originator (MLO), a regulatory term. An MLO may also refer to a company that does mortgage originations, like a mortgage broker.

What Does a Mortgage Loan Officer Do?

A mortgage loan officer has two main responsibilities:

1.    Accept and review mortgage loan applications from prospective homebuyers

2.    Work with borrowers to determine loan terms, including interest rates

Of course, mortgage loan officers’ day-to-day duties include much more than these two tasks. In a given week, they might meet with potential borrowers to review their options and explain basic loan definitions, work with underwriters to process loan applications, coordinate with home appraisers to ensure a house is worth what a borrower is offering, and monitor important deadlines for various clients to ensure everything is moving along correctly ahead of closing.

Mortgage loan originators charge a fee for their services. Homebuyers can typically expect to pay this fee as part of their closing costs.

Recommended: How Rising Inflation Affects Mortgage Interest Rates

How to Find a Mortgage Loan Originator

Do you need a mortgage loan officer for a home purchase or refinance? Here are some tips for finding a mortgage lender and loan officer, whether you’re an experienced or first-time homebuyer.

Reading Reviews

Reading about other borrowers’ experiences with particular loan officers and lenders can help weed out the ones you should avoid. Sites like the Better Business Bureau are good resources for customer reviews.

Asking Family and Friends

Online reviews aren’t your only source for feedback. You can talk with friends and family who have recently purchased a home to see if they would recommend their loan officer. If you belong to special groups on social media, like a neighborhood group, you can survey a larger group for recommendations for a mortgage loan originator near you.

Talking with Your Real Estate Agent

Real estate agents work closely with a wide range of loan officers. Your agent may be able to recommend a mortgage loan officer with a good reputation.

Shopping Around

Whether you’re interested in a local bank or an online lender, you have multiple options available. Researching multiple lenders online can help give you an idea of the right mortgage loan originator for you.

Interviewing Multiple Mortgage Loan Officers

When you have narrowed down your list, it’s a good idea to interview a few mortgage loan officers. If you let them know that you’re considering multiple options, they may even feel incentivized to offer you a better deal.

Checking Their License

In some cases, mortgage loan officers must receive formal education, register with the government, pass a licensing test, and take continuing education classes to maintain their license.

You can check a license number through the Nationwide Multistate Licensing System & Registry (NMLS) consumer access site.

Mortgage loan officers at covered financial institutions (those that are highly regulated) are not required to be licensed; they only need to be registered.

Mortgage Broker vs Direct Lender

If you’re thinking about mortgage shopping, you’ll want to understand the difference between a mortgage broker vs. direct lender.

A loan officer typically works for a specific bank or lender and can thus only offer you loan options from that institution. At bigger banks, you may only be able to access their loan options through their own mortgage loan officers. Working directly with a loan officer may yield discounts on closing costs or access to better rates.

A mortgage broker, on the other hand, does not directly lend you money. Instead, for a fee, brokers shop around to find you the best deal given your financial situation (credit score, down payment, income, etc.).

Because brokers aren’t tied to a specific lender, they might be able to find you a better deal. But brokers do not have access to every lender, so you still might be missing out on the best deal available.

The fees charged by mortgage brokers may be higher than those charged by direct lenders. If you’re deciding whether to work with a broker or direct lender, ask about all the fees associated with loan generation.

Recommended: Can You Roll Closing Costs Into Home Loans?

What Are the Qualifications to Become a Mortgage Loan Originator?

MLOs may follow multiple career paths, each of which may require different levels of education and licensure.

Education

At a minimum, MLOs need to be at least 18 years old with a GED. Many officers at least obtain a bachelor’s degree, often in business, finance, or mathematics.

License vs Registration

If you wish to work independently, for a broker, or for a nonbank, you must obtain licensure. A license is also a value proposition to potential homebuyers: It tells them that you have passed a difficult test and commit to continuing education.

If you work for a “covered financial institution,” you will not be required to obtain a license. You’ll simply need to register every year. The financial institution that employs you will likely coordinate this.

To earn your MLO license, you will need to:

•   Complete 20 hours of courses, as required by the NMLS.

•   Take and pass a state license test.

•   Pass the SAFE MLO test. (SAFE stands for the Secure and Fair Enforcement Act, which established guidelines for MLOs after the housing crisis in 2008.)

•   Keep up with NMLS requirements, including registration and continuing education.

Characteristics

Beyond the registration or license, a good mortgage loan officer will typically need the following qualities:

•   Good with numbers

•   Interpersonal skills

•   Strong decision-making and organization

•   An eye for detail

Recommended: What Are Subprime Mortgages?

The Takeaway

A mortgage loan officer helps potential homebuyers find a fitting mortgage, apply for the loan, and meet deadlines. You can interview several mortgage loan originators to see what they offer.

Are you starting to shop for a home mortgage loan? SoFi offers competitive rates and requires as little as 3% down for qualifying first-time homebuyers.

Get started by finding your rate.

FAQ

What are the job responsibilities of a mortgage loan officer?

A mortgage loan officer reviews mortgage loan applications and determines which loans and rates to offer potential homebuyers. The officer works with underwriting on loan approval, then helps the homebuyer through the process until closing.

What is the difference between a loan officer and mortgage broker?

A loan officer, aka mortgage loan originator, typically works for a lender and has access to the best deals of that particular lender. A mortgage broker helps homebuyers shop for the best deal, though they don’t have access to every possible loan.

How do you find a mortgage lender?

To find a mortgage lender, it’s a good idea to read online reviews, ask friends and family for recommendations, talk to your real estate agent about a referral, and shop around online.

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Photo credit: iStock/Paperkites

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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