What is Loan Servicing?

You may know the basic steps of getting mortgage approval, but what happens after you sign your closing documents? Many people aren’t familiar with loan servicing until they have a mortgage of their own, but understanding it is important if you’re planning on becoming a homeowner. Read on to learn what loan servicing is and how it works.

What is Loan Servicing?

The life cycle of a mortgage doesn’t end when you get approved for a loan, it’s merely the beginning. Once you officially assume the loan and start making payments on it, your payments will go towards the principal and interest, as well as additional costs included in your escrow account, like home insurance, property taxes, and private mortgage insurance (PMI). The entity that manages your payments is your loan servicer, and the act of paying these expenses is called loan servicing. Your loan servicer oversees making timely payments on your behalf. They can also explain your options to avoid foreclosure if you’re having trouble making mortgage payments. These alternate options include a forbearance plan and loan modification. If you still can’t keep up with payments, your servicer may suggest a short sale or a deed in lieu of foreclosure, which are less financially damaging than a foreclosure. One of the goals of loan servicing is to keep you on track with your payments and help you maintain ownership of your home. It’s not just standard mortgages that get serviced—refinances, home equity line of credit* (HELOC), and home equity loans also require it.

How Does it Affect Me?

When homeowners receive a notice that their mortgage has been sold to a third party, they may be confused or worried. If this happens you, don’t worry, there’s nothing wrong. The terms of your loan won’t change, only the address where you mail your payment and who you mail it to. Your lender has 15 days to notify you of the loan ownership transfer, and you have a 60-day grace period in case you accidentally send an on-time payment to the old address.

Sometimes lenders service their own loans, but this isn’t always the case. When you agree to the mortgage terms, you won’t be able to choose or change who your servicer is, nor opt-out of having your loan sold. You could pay off your mortgage to stop dealing with a servicer altogether, or refinance, but even then, you won’t have any say in who services the refinanced loan. The best thing you can do if you get a new servicer is to keep making timely mortgage payments and always review and maintain your mortgage statements for record-keeping purposes. If you have any questions about your statement, you should contact your servicer.

Mortgage servicing is essential to the mortgage industry because it ensures the loan and other necessary costs are paid off. For homeowners, servicers provide structure to ensure they can keep and stay in their homes.

If you have questions about becoming a homeowner, contact one of our licensed Mortgage Loan Originators. If you’re ready to begin the home buying process, click here to get started!

* NFM Lending does not service HELOC loans in-house

These blogs are for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact us.