Definition of loan officer

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What is a loan officer?

A loan officer is a representative of a bank, credit union or other financial institution who assists borrowers in the application process. Loan officers are often referred to as mortgage loan officers because it is the most complex and expensive type of loan most consumers face. However, most loan officers help consumers and small business owners with a wide variety of secured and unsecured loans.

Loan officers should have a thorough knowledge of loan products, banking industry rules and regulations, and the documentation required to obtain a loan.

How a loan officer works

The loan officer is the direct contact for most borrowers who apply for a loan from a financial institution. The whole process can be handled over the internet, but most consumers probably still prefer a knowledgeable human on the other side of what is, after all, an expensive and complex transaction. In fact, one of the reasons banks continue to have so many branches is that they have to bring loan officers face to face with potential borrowers.

Key points to remember

  • A loan officer helps consumers and businesses choose and apply for a loan product.
  • This person is the main contact with the financial institution until the loan is closed.
  • Most loans require a pile of paperwork, and mortgages are the worst.

Loan officers are familiar with all types of loans offered by the financial institutions they represent and can advise borrowers on the best options for their needs.

They can also advise the potential borrower on the type of loan for which he or she may be eligible. The loan officer is responsible for the initial screening process and is unlikely to apply for someone who does not meet the credentials of the lender.

The application process

Once a borrower and loan officer agree to proceed, the loan officer helps prepare the application. The loan officer then forwards the request to the institution’s underwriter, who assesses the creditworthiness of the potential borrower.

If the loan is approved, the loan officer is responsible for preparing the appropriate documentation and loan closing documents.

The loan officer is responsible for collecting the appropriate closing documents for a mortgage or other loan.

Some loans are more work than others. Secured loans generally require more documentation than unsecured loans. Mortgages require a large stack of documents due to the many federal, state and local regulations that affect them. Reverse mortgages and mortgage refinances require the borrower to receive an HUD-1 settlement statement prior to closing.

Some loan officers are paid by commissions. This commission is a prepaid charge and is often negotiable. Commission fees are generally the highest for mortgages.

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