CareerExplorer’s step-by-step guide on how to become a loan officer.
Is becoming a loan officer right for me?
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While in high school, aspiring loan officers should take advantage of course offerings that will help them cultivate the right skill set. These include math, statistics, and economics; as well as word processing and spreadsheet software. Psychology, public speaking, and communication courses can all help to lay a solid foundation for a career that involves a lot of face-to-face interaction with clients and with other professionals such as real estate developers, builders, and agents.
At a bare minimum, a loan officer must have a high school diploma, but to secure an entry-level position with advancement potential, post-secondary education is very much encouraged in the field.
Undergraduate programs in business administration, finance, and economics are all valid choices for prospective loan officers. Regardless of the specific degree they pursue, students should look for curricula that include the following pertinent courses:
In this course students will examine the various principles of accounting and will learn how to produce different financial statements and apply measurement theories.
In the United States, this course introduces students to American legal system. The curriculum includes foundations of business law and the federal constitution and address such topics as property rights, tort law, contract law, and commercial codes.
The objective of this course is to provide students with management skills and an in-depth understanding of financial principles. Capital budgeting, financial decisions, and international finance are addressed.
Principles of Macroeconomics
This course is an overview of the economy as a hole. It covers the basic principles of economic systems and highlights areas such as unemployment, inflation, the banking system, and taxation.
Management process, strategy building, and planning stages are at the heart of this course.
This course focuses on the relationship between stock prices and the economy. It covers technical analysis methods and factors that affect decision-making.
In this course students investigate the international aspects of investment planning. Topics covered generally include exchange-rate issues, financial decisions, currency rates, and multinational firms.
Loan officers commonly specialize in one of three kinds of lending: consumer lending, commercial lending, or mortgage lending.
Consumer Loan Officers
These officers specialize in loans to people, to individual consumers. Consumers take out loans for many reasons, from buying a car to paying college tuition. For some simple consumer loans, the underwriting or evaluation process is fully automated. However, the loan officer is still needed to guide applicants through the process and to handle cases with unusual circumstances. Some institutions – usually small banks and credit unions – do not use underwriting software and instead rely on loan officers to complete the underwriting process manually.
Commercial Loan Officers
These officers specialize in loans to businesses, which often use the loans to buy equipment or inventory and upgrade or expand operations. Commercial loans frequently are larger and more complicated than other types of loans. Because companies often have complex financial structures and statements, commercial loans usually require human judgment in addition to analysis by underwriting software. Furthermore, some commercial loans are so large that no single bank will provide the entire amount requested. In these cases, loan officers may have to work with multiple banks to construct a package of loans.
Mortgage Loan Officers
These officers specialize in loans used to buy real estate (property and buildings). Mortgage loan officers, officially referred to as mortgage loan originators (MLO), arrange loans for both residential and commercial properties. Often, these officers must seek out clients, which requires developing relationships with real estate companies and other sources that can refer prospective applicants.
Within these three fields, some loan officers specialize in a particular part of the loan process:
Loan Collection Officers
These officers contact borrowers who fail to make their loan payments on time. They work with borrowers to help them find a way to keep paying off the loan. If the borrower continues to miss payments, loan officers start the process of taking away what the borrower used to secure the loan (called ‘collateral’) – often a home or car – and selling it to repay the loan.
These officers specialize in evaluating whether a client is creditworthy. They collect, verify, and evaluate the client's financial information provided on their loan applications and then use loan underwriting software to produce recommendations.
Licensure to become a Mortgage Loan Originator (MLO)
Loan officers wishing to specialize in mortgage loans must be licensed as a mortgage loan originator (MLO). To earn the MLO license, candidates must fulfill four requirements as stipulated by the National Multi-State Licensing System (NMLS):
Pre-licensure Education (PE)
Complete 20 hours of pre-licensure NMLS-approved PE training. Many states require additional state law education.
Pass The National Test
To meet this requirement, a test score of 75% or higher is needed. Candidates who do not pass must wait 30 days before retaking the exam. After three failed attempts, a 180-day-wait period is required.
The NMLS produces a test preparation package. It includes videos addressing the test itself, the loans industry in general, and up-to-date information on laws and changes; slides from the 20-hour NMLS webinar course; several hundred practice questions and case studies; an additional 705 slides designed around the NMLS test outline; the 350-page NMLS textbook; 50 pages of exam study notes; 13 pages on the Dodd Frank Act; and additional pages dedicated to Mortgage Math.
MLO Continuing Education (CE)
To maintain their license, mortgage loan officers must complete eight hours of annual NMLS-approved CE training. Some states require one to three hours of state-specific law training as part of or in addition to this requirement.
Criminal Background Check & Credit Report Check
The final step to secure licensure involves authorizing both a criminal background check and a credit report check.
Certification (recommended / optional)
Ongoing professional development is vital to being a successful loan officer. Laws change often at both the state and the federal level.
In addition to offering professional certifications, the American Bankers Association (ABA) administers certificate programs, designed to help loan officers develop expertise in specific areas and remain up-to-date on industry regulations.
How to become a Loan Officer
While loan officers increasingly hold a Bachelor’s Degree in finance, economics, business, or a related field, the minimum requirement to enter the occupation is a high school diploma or equivalent. Aspiring loan officers who pursue an undergraduate degree often concentrate on studying taxation, financial record auditing, accounting systems, and accounting software.
In many cases, loan officers receive considerable training on the job. It is not uncommon for banks, credit unions, and mortgage companies to operate their own training programs aimed at familiarizing new-hires with the financial products that they offer and the technologies that they use. Some financial institutions and mortgage brokers rely on a software program to manage potential leads, client information, and documents; and to underwrite loans and ensure compliance with applicable laws and regulations.
Organizations like the American Institute of Banking (AIB), overseen by the American Bankers Association (ABA), offer another educational option: diploma and certificate programs through local training providers. Consumer lending curricula commonly include courses in building customer relationships, client referrals, ethics, general accounting, the law and banking, and personal tax return analysis. Curricula for commercial lending programs focus on analyzing financial statements, evaluating and structuring corporate loans, credit and deposit products for small business, and growing small business relationships.
Licensure for consumer and commercial loan officers is not mandatory, but industry organizations such as the ABA and the Mortgage Bankers Association (MBA) offer voluntary credentials to individuals who meet specific educational and experience prerequisites and pass a certification exam.
Most U.S. states require mortgage loan officers to obtain a license as a mortgage loan originator (MLO). Required standards to become a licensed MLO vary by state; but in general, candidates must complete a minimum of 20 hours of education offered by state-approved providers. Typically, states follow the standards set by the Nationwide Multi-State Licensing System (NMLS). After fulfilling the educational criteria, prospective mortgage loan originators must pass the NMLS National Test and often both a criminal history background check and a credit check.