Mortgage Lender vs. Mortgage Servicer: Who Does What?

Team Simplist
Mortgage Lender vs. Mortgage Servicer: Who Does What?
Dec 14, 2021

What is the difference between these two entities, and how can you ensure that you’re working with each as effectively as possible?

If you’re a first-time homebuyer, you may be surprised to find that mortgages and the right to service them are commoditized and sold, meaning that you might deal with multiple different servicers throughout the life of your loan. In other words, the lender you’ve gotten to know during your home purchase process isn’t the same company to which you’ll end up sending your mortgage payment every month.

Understanding the distinct roles assumed by your mortgage broker, lender and servicer, can help you work more effectively with each. Whether you’re just starting to look for a home or simply want to make your finance process more efficient, it’s important to understand whom you’re dealing with throughout both the purchase and payment phases of your home loan.

Here's our handy guide:

Functions of a mortgage broker and lender

Your mortgage broker and lender are probably the first financial entities you will talk to when you begin thinking about buying a home. They’ll cover all of the following:

Pre-planning, pre-qualification, and pre-approval Weeks or months before you apply for your loan, you’ll receive an assessment of your current financial situation, including your employment history, debt and savings. They’ll help you determine what you need to do to qualify for a loan and how much home you can afford, then use the information gathered to pre-qualify or pre-approve you for your home loan.

Helping you choose a loan product Your broker will help you choose a loan based on the down payment funds you have available as well as any special programs for which you might qualify. In addition, they will be familiar with down payment assistance, grants, and other programs that may be helpful in putting together your financing plan.

Application and Documentation Your broker will help you apply for the loan and will work with you to gather information and documentation you need to support your application. These may include tax returns, paycheck stubs, bank statements, and other supporting documents.

Loan Processing and Underwriting Your lender will work on processing your loan, with the help of your broker. This stage may involve gathering additional documents or information to help move the loan through the underwriting and final approval processes.

Preparing Documents The lender will prepare documents to ensure that you are familiar with the loan terms, the amortization schedule and any fees associated with the loan. In addition, they will ensure that all of the final paperwork for the loan is properly completed and submitted to the closing officer.

Funding and Closing The lender will make sure the loan is funded and that you have the information you need to provide your share of the funds in time for the property closing. Your lender will often be on call during your closing in order to answer any questions and to ensure that the closing process is completed on schedule.

Functions of a mortgage servicer

In contrast, the mortgage servicer plays an ongoing administrative role, managing the paperwork and processes associated with your home loan. While you may have grown used to dealing with a specific individual that works for your lender, your mortgage servicer will generally take a less personal approach. Staff members working for your servicer will do the following:

Payment processing You will send your monthly mortgage payment to your mortgage servicer for recording and processing. The servicer will maintain up-to-date information on your loan balance and amortization schedule.

Tracking balances Your mortgage servicer will keep track of your principal balance as well as the amount of interest you have paid. You, too, will be able to view these all-important numbers on each statement.

Managing tax forms Your mortgage servicer will create a statement each year for tax purposes, allowing you to document your mortgage interest tax deduction.

Managing escrow accounts Your mortgage servicer will maintain escrow accounts and make payments for your property taxes and homeowners’ insurance, as well as other possible requirements like private mortgage insurance (PMI).

Initiating foreclosure proceedings In the unfortunate event that you are unable to continue your payments, your mortgage initiates the legal process leading to foreclosure of the property and manages the foreclosure process.

Performing loss mitigation Mortgage servicers may work with homeowners to create a plan to delay or prevent foreclosure under specific circumstances.

Processing borrower requests as needed You can reach out to your mortgage servicer if you have questions about your loan, its terms, or if you need to make adjustments such as canceling PMI.

What if your mortgage servicer changes?

Over the life of your loan, your mortgage servicer may change several times. If this happens, you will receive written notification from your current servicer and, in many cases, the same information from your new servicer. You will receive this notification at least 15 days before the loan servicing changes hands.

This notification will let you know who your new mortgage servicer is and will provide complete information regarding how and where to submit your mortgage payment. It will include complete contact information for the new servicer as well as legal statements regarding the process and your rights as a borrower.

During the first 60 days of this change, you will not be charged a late fee if you mistakenly pay your previous servicer—this accommodation is mandated by federal law! If you have scheduled automatic payments for your home loan, talk to your bank to find out how payments can be redirected in the event of a change to your mortgage servicer.

Find the right mortgage lender for your home purchase or refinance at Simplist. With thousands of loan products available from the industry’s top lenders, you’ll find the terms and options you need to make the numbers work. In addition, our streamlined pre-approval and application process makes today’s low interest rates more attractive than ever.

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