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The Difference between Loan Officers at Banks and Private Lenders

May 11, 2017

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Homebuyers on the hunt for a mortgage in 2017 have more options at their disposal than ever before. As always, name-brand banks continue to dominate the conversation regarding home loans. But increasingly, new homeowners are finding it easier and more cost effective to finance their home purchases with the help of a private mortgage lender.

While they each share the same goal, private mortgage lenders differ from their big bank counterparts in a few key ways. Homeowners should familiarize themselves with the best private mortgage lenders before signing onto a loan. After all, closing that loan could very well mark the beginning of a years-long relationship.

How private lenders differ

At any financial institution, the person who reviews and approves mortgage applications is called a loan officer. But despite similar titles, there are some significant differences between a loan officer working at a typical bank and one at a private lender.

What does a loan officer do, and how do those duties differ depending on their institution? One of the biggest differentiators between the two can be seen in legally mandated licensing and registration requirements:

  • A loan officer working at a depository institution, like a bank or credit union, must be registered under the National Mortgaging Licensing System. Once approved under this federal system, the loan officer is authorized to conduct business in all 50 states.
  • Private lenders, however, are held to a different, arguably higher standard. Since they are considered “non-depository institutions,” loan officers at a private lending firm must not only be registered under the NMLS, but also must obtain a license in the state where they will operate.

This additional license requirement means private lenders must undergo at least 20 hours of state-mandated coursework, as well as at least eight hours of continuing education per year. The course requirements vary by state but usually include extensive coverage of federal and state lending laws, ethics courses and other technical training.

How loan officers get a leg up

The end result of this extensive training, according to the NMLS, is a crop of smart, trustworthy mortgage lenders who can help homebuyers navigate the mortgage process.

“The goal of NMLS is to employ the benefits of local, state-based financial services regulation on a nationwide platform that provides for improved coordination and information sharing among regulators, increased efficiencies for industry, and enhanced consumer protection,” according to the NMLS website.

In terms of tangible benefits gained from working with a loan officer at a private lending firm, consumers can expect to see some of the following, according to experts speaking with Nasdaq:

  • An easier, more personalized approval process, especially for borrowers who have had difficulty with their credit histories.
  • Lending geared more toward local community investment, property rehabilitation and home improvement.
  • More flexible terms and payment plans.

As it turns out, homebuyers could be missing out if they only consider name-brand banks in their hunt for the best mortgage. By working with a loan officer at a private lending institution, it’s possible to get a great home loan and form a lasting bond.

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