In December 2022, the Federal Housing Administration (FHA) issued a letter clarifying its requirements regarding when an individual may have multiple roles or sources of compensation in connection with a single FHA transaction. Part of this rule change will allow individuals to serve as both the real estate agent and mortgage originator for FHA-insured home sales.
Previously, this was not permitted on FHA loans, although it has been an allowable practice on non-FHA financing. While these changes and others in the agency’s December letter might not mean much for the typical loan originator, it does bring back the conversation of dual- capacity roles in home purchase transactions.
Historically, the loan originator and real estate agent, while working hand and hand, are two separately licensed individuals working for different companies with completely different responsibilities on a specific transaction. Contrary to popular belief, loan originators can also be licensed real estate agents and work in a dual-capacity role on most purchase deals. This allows an individual to be compensated for serving in both roles on a single transaction.
This is not a new trend and it’s more popular in some areas than others — often in hyper- competitive markets. In 2023, the conversation has regained traction and is a viable option for loan originators and real estate agents looking to expand their network, knowledge and income streams.
Requirements and guidelines for obtaining a real estate license differ from state to state, just as it does to become a loan originator. The initial application, real estate licensing course, exam requirements, continuing education and fees are different depending on the state in which you seek to be licensed. Many states now offer the initial prelicensing real estate class as well as continuing education online, making it easier for prospective Realtors to work toward their real estate license and keep it current.
Receiving the proper licensing and training as a Realtor not only helps with career and financial opportunities, it also allows the loan originator to experience the purchase transaction from a different perspective. Working with a buyer as a Realtor is completely different than working with the same client as an originator, since it is a different sale and mindset. There are different challenges, objections, compliance rules and duties that a Realtor must adhere to within the guidelines of their state and local communities, multiple listing service and brokerage.
Eighty-six percent of homebuyers from mid-2021 through mid-2022 used a real estate agent, according to the National Association of Realtors. Working with a buyer as a loan originator and Realtor on the same transaction can be stressful, but it can also make the process more seamless. Creating a one-stop shop for a homebuyer can provide a higher level of service and better overall client experience. In this scenario, the buyer has one contact to handle both the mortgage and real estate aspects of their transaction. If any changes to the preapproval, financing questions or general mortgage concerns arise during the process, an agent can provide the answers without reaching out to an originator for assistance.
In 2023, leads are more important than ever for both Realtors and originators. There is more than one way to reap the benefits of the real estate license, not only by working with potential buyers but also with sellers, landlords, property managers and developers.
While some of these interactions might not result in an immediate mortgage transaction, they could lead to business in the future. A Realtor with a good base of renter clients will hopefully work with them when they choose to purchase a home. There are endless co-marketing opportunities to help obtain future mortgage clients when marketing real estate. The additional experience and contacts will allow loan originators to become more knowledgeable about the overall homebuying process along with the day-to-day responsibilities of being a Realtor.
The brokerage that you decide to hang your license at may have a mentorship program or real estate team you can become part of, which can help you navigate through transactions as a Realtor. This can also help a loan originator create new relationships with agents and other members of the real estate community.
The same is true with the development of current real estate agents to become originators. In 2022, the share of all-cash buyers increased, but the vast majority of homebuyers will still obtain a mortgage. Therefore, training and developing a real estate agent to become a licensed originator allows them to earn more income and have more control over the transaction.
Providing a single contact for the prospective buyer creates a confident client. The hybrid agent-originator has thorough knowledge of the specific property at hand. They know the realistic value and potential points of risk, and they have an unobstructed view of the buyer’s financial capabilities. This hybrid professional can better advise their clients and make sure they are not overextending themselves.
Realtors who decide to become dually licensed can not only take advantage of the purchase market but use their database of previous clients to generate refinances as well. There are compliance disclosures and advertising guidelines that should be reviewed by your company’s legal department. Some lenders and investors may have a policy that does not allow for dual compensation and/or having your real estate license.
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In a hyper-competitive market, finding the perfect home is just the beginning. An offer package will typically include favorable financing terms as well as inspection limitations, appraisal waivers and expedited timelines. Having a dually licensed real estate professional can make both sides feel more comfortable about the transaction. ●