What is a Loan Officer?

A loan officer is like a schoolteacher grading students…

Except instead of examining your performance in math, science, or another subject to determine if you should pass, a loan officer will review your credit history, income, and other financial details to determine if you qualify for a loan.

A loan officer is an individual who typically works for a bank, credit union, or other lender. He or she will review loan applications and decide if an applicant is eligible for a requested loan. This often means reviewing the applicant’s credit history, income, savings, and other details to understand an applicant’s financial situation.

Mortgage loan officers are one type of loan officer. Mortgages are among the most complex loans and the application process can be intensive, both for the applicant and the officer. Loan officers also may review personal loans, automobile loans, and more.

Loan officers usually act as the first point of contact for consumers or businesses that apply for loans. If someone has a question about eligibility or terms, they can ask a loan officer. This means loan officers must have comprehensive knowledge regarding the application process and the financial products offered. They are also expected to understand relevant government regulations that a lender or borrower must follow.

Reviewing applications for loans often involves meeting with potential clients face-to-face or chatting with them on the phone. During this initial interview, the officer will determine if the applicant meets the lender’s minimum eligibility requirements, including credit score and income.

One of the most important factors to consider is the applicant’s credit report, which will detail their credit history. This includes past mortgages, credit cards, car loans, student loans, and other outstanding debts. Loan officers may also review debt-to-income ratios⁠ — meaning how much debt you have versus how much income.

People with a long credit history that shows regular payments and responsible borrowing will usually have a higher credit score (the higher the better). Most lenders prefer working with individuals who have good credit and will usually extend them lower interest rates than applicants with poor credit.

Loan officers may also need to review property evaluations for loans secured with collateral, such as a house or car. If you cannot make payments in the future, the bank could foreclose on your home and take ownership of it. The officer needs to ensure that the property is worth at least the value of the loan. For instance, a lender likely won’t extend a $300,000 loan for a $200,000 house. As loan officers are interviewing potential clients and reviewing applications, they also have to field phone calls and emails from applicants.

An applicant may ask about the status of their loan, how interest rates work, or anything else regarding their loan. Some people may have questions about the technical language in the contract, for example. Loan officers need to address these concerns.

Some loan officers look for clients. This might mean posting on social media or working alongside real estate agents, who may refer home buyers. Commercial loan officers may also be called loan or mortgage underwriters. Besides generating new loans, they can also help people refinance existing loans⁠ — where the old loan is replaced with a new loan, often with a lower interest rate.

The average loan officer earns $63,380 per year according to the Department of Labor. The lowest 10% earn less than $33,000, while the top 10% pull in more than $138,000.

The compensation type varies from organization to organization. Some companies pay loan officers fixed salaries. Other lenders only pay commission. Some offer a mix of salary and commission.

Many companies offer some level of commission, which generally falls between 1-2%. So, if a loan officer closes a $500,000 loan, he or she will receive between $5,000-$10,000. A $100,000 loan will net between $1,000-$2,000. Loan officers cannot make money off interest rates. This discourages loan officers from charging higher interest to increase their compensation.

Loan officers are involved in many steps of the application process and often have to walk clients through it. Some loans can be approved in just a few days. Car loans, for example, can usually be approved in one day.

Home loans typically take longer to approve. The Mortgage Bankers Association reported that the average mortgage was worth $411,400 in 2022. Given how much money is at stake, lenders need to be careful.

Mortgage applications involve several steps over a prolonged period. The average mortgage is processed in about 30 days, but it can take up to 60 days.

Many lenders require, or at least prefer, that loan officers have a bachelor’s degree in finance, business, or a related field. Some lenders don’t require a college degree and will consider relevant experience instead. Some need only a high school diploma.

A mortgage loan officer has to get a Mortgage Loan Originator (MLO) license. This requires at least 20 hours of coursework and passing an exam. Your MLO license must be renewed every year.

Applicants must also undergo credit and background checks. Some states have additional requirements.

Some people work as a loan officer assistant for a few years before becoming an officer. An assistant may help the loan officer with research, gathering documentation, and answering questions from clients. An assistant can usually rely on the mortgage officer if he or she has specific concerns. This allows them to learn on the job.

First, loan officers frequently work with applicants in person or on the phone. So, good interpersonal skills are a must. Buying a home or automobile is a big decision and some people may be stressed or have a lot of questions. Others will be disappointed if they are rejected or required to provide more information.

Loan officers must also understand complex financial terms, acronyms, regulations, and more. You must also be able to explain these complex topics to consumers.

A degree in finance or business helps, but some officers pick up financial skills through self-study.

Loan officers typically work in comfortable office environments and don’t have to spend a lot of time on their feet. Loan officers often work alongside other people, such as assistants and customers. For many, human interaction is a plus.

A lot of loan officers earn a substantial salary. More than 10% of loan officers earn six figures a year. However, the pay is often tied to performance. Generally, the more loans approved, the more a loan officer will make.

The loan industry can be cyclical. During the Great Recession of 2008, housing prices plummeted as demand for houses decreased. The mortgage industry also suffered as fewer applicants applied for loans.

Working with customers can be difficult. Many applicants will ask tough questions. Explaining financial concepts is challenging, especially if the customer’s financial knowledge is limited. If a customer is rejected, or their application takes a long time to process, they may become irate or stressed. The loan officer may end up the subject of their anger.

Some loan officers must find customers. This might mean cold-calling potential customers, attending events, or working with real estate agents. A lot of people don’t enjoy sales but for many loan specialists, it’s part of the job description.

Finally, many loan officers have schedules that take them away from their family and friends. Some loan officers start working later in the morning (10-11 AM) and go on well into the evening. You might not get home until 9 p.m. or later.

These somewhat odd hours often occur because loan officers need to contact clients after the client leaves work. So, as a loan officer, your working hours have to cater to the schedules of your clients.