The mortgage process can be complex, making it difficult and confusing for you while you search for and secure a loan. The lender and the borrower have to take many things into consideration, and it can be hard to find the right match.
One issue you may come across during the mortgage process is that your mortgage lender does not service a loan you’re interested in. This isn’t a major issue, but it can certainly be annoying and add more hurdles to a process that doesn’t need them. At First Option Mortgage of Indianapolis, we pride ourselves on making the mortgage process as simple as it can be, but why do some companies service fewer types of loans?
We’re here to help clarify the differences between a mortgage lender and a mortgage servicer. Read on to learn more!
The Difference Between a Mortgage Lender and Mortgage Servicer
To start things off, it’s important to know that a mortgage lender and a mortgage servicer are not mutually exclusive inside one company. It’s common for a lender to sell their servicing somewhere else, but it’s also possible that your lender is a servicer at the same time.
So how are they different?
A mortgage lender is a financial institution that provides borrowers with their loans. They provide the money for your new house.
Once you get your loan, the mortgage servicer manages it. Questions, payment adjustments, or normal scheduled payments are handled by contacting your servicer.
You don’t have to opt for it, but a lender who services their loans makes the process simpler. When a lender services your loan, you can have peace of mind knowing you already have a relationship with them that you can continue to grow.
Why Your Lender May Not Service Your Loan
A lender’s decision to service a loan or transfer servicing to somewhere else is based on capability and profitability.
It can be too much work to service a loan for smaller lenders because of staffing and infrastructure constraints. If a lender doesn’t have the resources to service a loan and they find out the cost of adding the needed resources trumps the benefits, they may decide to transfer the loan servicing somewhere else.
Some responsibilities of servicers include:
- managing and tracking monthly payments, including the accuracy and timing of your statement delivery
- managing your interactions in your escrow account (if you have one) including property tax and insurance payments
- responding to questions about your account and getting to the bottom of any errors that could have been made
- handling maintenance tasks like making sure you have enough flood or homeowners insurance, letting you know about interest rate changes (only for adjustable-rate mortgages), and helping you through refinances
The kind of loan you get also affects your lender’s ability to service the loan. Some loans have to be serviced by a certain agency because the law says so, and others may not be eligible for servicing because of the financial institution that supports the lender. If this is the case for you, the lender could still give you the loan but they won’t be able to service it.
