That huge stack of paperwork you’ll face when you sign on all the dotted lines for a home loan is the result of a lot of work by a whole team of real estate professionals. We can’t list them all, but here are some of the many players in the mortgage process.
Real estate agents
Naturally, it all starts with finding the right house. You may search listings online, go to open houses or drive through your favorite neighborhoods. Some houses are “FSBOs” – for sale by owner. In others, you may be introduced to a “listing agent,” a real estate agent hired and paid by the seller to market the house for sale.
The agent representing the seller will be paid a commission – a percentage of the purchase price — when the house sells. Make no mistake about it: they are representing the seller’s interests, not yours.
As a buyer, you may enlist the services of a real estate agent, as well. It can be nice to have someone on your side to help navigate the process, translate the lingo and assist in negotiations. In some cases, a real estate agent can represent both the buyer and seller, known as “dual agency.”
Agents work for a real estate brokerage firm have taken real estate licensing courses and passed an exam, as required by the state of residency. You may also hear the term “realtor.” That is simply an agent who is a member of the National Association of Realtors, held to the standards and code of ethics of the organization.
Mortgage brokers and lenders
Now that you have found the perfect home and signed a sales agreement, it’s time to begin the loan process. Many prospective homeowners pre-qualify for their home loans so that they know just how much they can afford, and are likely to be approved for. It’s a good first step that tells home sellers that you are a serious buyer.
To apply for a loan, you may contact a mortgage broker, or visit one or more financial institutions.
A mortgage broker is a middleman who works with a number of lenders. They assist potential buyers in shopping for a loan – often but not necessarily, from several sources — and are usually paid a commission by the lenders.
Using a mortgage broker can assist buyers who might otherwise not take the time and effort to shop more than one lender for the best rate on a loan. But brokers can also be partial to lenders who pay them the biggest fee. As of January 2014, the Consumer Financial Protection Bureau has implemented new guidelines to prohibit loan originators — like mortgage brokers — from receiving compensation based on the interest rate or fees of a loan, or payment based on the profitability of a mortgage. These new rules also forbid mortgage brokers from receiving compensation from both the buyer and the lender.
The number of mortgage brokers has declined drastically since the housing downtown and financial crisis of 2008. Only 10% of loans have been originated by brokers in the past two years, according to Inside Mortgage Finance, a trade publication. In fact, some larger lenders are now refusing to work with mortgage brokers, preferring to originate loans only through their own loan officers.
Banks, credit unions and other financial institutions often offer mortgage loans to their customers. It is always a good idea to talk with your current financial institution first, but shop others as well.
The government’s involvement in mortgages
The Federal Housing Administration (FHA), a division of the U.S. Department of Housing and Urban Development (HUD), helps families to afford to own their own homes, just as the Veterans Administration (VA) helps our service men and women do the same. These government agencies insure a portion of the value of the mortgages, protecting lenders against losses and encouraging homeownership. The FHA operates entirely from its own profits and requires no taxpayer funding.
Quasi-government agencies, known as government-sponsored enterprises (GSEs), allow lenders the assurance of a constant flow of liquidity. The Federal National Mortgage Association, known as Fannie Mae, and Federal Home Loan Mortgage Corporation, or Freddie Mac, create mortgage-backed securities that provide a secondary market for bundles of home loans.
Nearly bankrupted by the housing crisis, Fannie and Freddie were bailed out by taxpayers during the financial crisis, at an initial cost of some $187 billion — all of which has been repaid from subsequent profits.
Real estate processors and the rest
Once your loan is approved, the paperwork really begins to pile up. Real estate processors compile the initial personal and financial data that has already been gathered during the application process and begin completing the loan documentation. A real estate appraiser values the property and submits a report. Insurance information is verified, escrow accounts may be established for the payment of taxes and a multitude of required disclosures and disclaimers are included in the loan closing documents.
Additional roles in the home buying process can include a home inspector, home stagers, real estate title abstractor, title insurers, a closing attorney, insurance agents – and finally — at long last – a moving company.
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