All You Need to Know About Mortgage Loan Origination Process

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Mortgage origination is the process a borrower follows to apply for a home loan. It also involves all the steps leading the borrower to get keys to the home.

What are the steps involved in the mortgage loan origination process?

The mortgage loan origination process involves many steps before you finally get keys to your abode. 

1. Pre-approval

In many states, the loan process begins when homebuyers get a  pre-approval from a lender to take a tour of the house with either the owner or the real estate agent.

With a pre-approval letter, save yourself time and effort as well as the over involvement of various parties. In this first mortgage loan origination process flow, you may have to provide specific financial documents to your lender and undergo a thorough credit check. This way the lender can identify your creditworthiness. For the process you may more or less require the following documents:

• Recent statements from your bank accounts
• Investment information
• Up-to-date pay stubs/salary slips
• Last two years of income tax returns and W-2s
• Your driver’s license or passport or any identity proof recognized by the lender or the agency

All this information will help the lender make a fair estimate of the type of house you can afford.

2. Loan application

Apart from a pre-approval, you need to also complete an application for the specific loan type you want, requiring a thorough screening of your finances.

Start by crafting a budget listing in detail your monthly income and all your liabilities.

To check your credit report online, free of cost, simply visit – AnnualCreditReport.com. If your report comes out error-free without any issues, that’s your green signal to apply. You can start with a simple online application either by phone or mail. Or, you can also schedule an in-person meeting with your lender, if you are applying through a bank or credit union.

While the application process continues, you are likely to receive a loan estimate, including a document that fine points the total costs of the loan you have applied for. 

Lenders will quote these costs upfront, which will further allow the borrowers to compare offers. On the same day or just within 3 days of applying online, you are likely to receive the loan estimate.

You may want to be prepared for a one-time application fee as well, which varies from one lender to another.

“Bridging loans are also a viable option. As the name suggests, it bridges the gap between your savings and the cost of your new home!”

3. Loan processing and underwriting

During this process, the lender and underwriters will assess your information, also known as your risk profile, which will help them determine the amount of mortgage you can take and pay back on time.

Be prepared to answer a lot of questions, fill out several forms and hand over dozens of personal documents. You may be expected to provide the following information as well:

• Your debts, such as student loans or credit cards
• Your detailed work history and income
• List of assets including bank accounts, stocks, retirement funds, etc.
• The size of a down payment you may have to pay, along with an explanation of where it is coming from
• The type of property you’re willing to purchase

After this, the lender will begin evaluating all your information, either manually or using a specific software. This will help them come to a decision about whether they should loan you a mortgage or not. This is the time when a lender chooses to approve or deny you the loan. They may also ask for more details or documents to carefully analyze your file.

4. The closing

Once your mortgage application gets approved and underwriting is finished, the next step involves the closing.

At this step, you’ll have to sign paperwork saying you agree to the loan terms and full transfer of the property to get the keys to your new house. The paperwork will also suggest you are taking full responsibility for paying closing costs, which typically includes an origination fee along with the expense the lender charges for initiating and processing the loan.

What does mortgage origination costs?

This is nothing but a percentage of the loan amount. It is one of the ways for lenders to cover their costs for handling your loan. A fairly common amount is 1%.

For instance, the lender may charge you a $3,000 origination fee on a $300,000 loan, which may vary from one lender to another and by market.

Your lender may also charge you other fees including underwriting or a document preparation fee. If there is no origination fee, your lender’s compensation may be built based on the rate or loan profitability.

As per experts, major closing costs and fees fall into one of the following three categories:

• Some may not change
• Some may go up to 10%
• Under special circumstances, some may go up without limit

In case of allowable changes though, your lender may offer you a revised loan estimate as well.

Since lenders are for-profit entities who are competing in the loan business, you are encouraged to shop around. Keep in mind that closing costs and rates will certainly vary. While some lenders may negotiate, others may not.

There are many ways to negotiate closing costs. You can ask your lender for a discount or have the seller pitch in. You can also roll the costs into your loan. This can help you save money upfront, but it will cost you more over the life of the loan. However, there are also free and open-source loan management softwares available. 

Simple ways to apply for a mortgage

The mortgage loan origination process flow can be time-consuming and very stressful for you. You can save yourself from most of the hassles  by being well-prepared with the following.

1. Check your credit

 Confirm whether your credit score meets the minimum requirements and your report is completely error-free. If you have a higher score, you will get better choices and will have to pay less interest.

You can raise your score by lowering your credit utilization rate, staying on top of your payments, etc. Try to avoid any late payments on your rent, credit cards, student loans or car loans. Also ensure to keep the same job because stability will always remain a crucial factor for a lender.

2. Understand the type of mortgage you want

Start by understanding the different kinds of loans- from conventional to USDA loans. Research in depth to know which one fits your finances and situation the best.

3. Always compare offers from different lenders

 To stay within budget, find the best lender. Talk to a number of lenders, ask your friends, family, and real estate agent who they’d recommend and why. 

Different types of lenders

There are different types of lenders including community banks, credit unions, national banks, mortgage brokers, mortgage bankers, and online lenders. Each state has a housing organization that closely works with lenders of all kinds and may be a good place for you to start with.

Every state has a ‘mission based’ housing finance that sells tax-exempt bonds to support discounted home loans to first-time homebuyers and veterans. They also provide down payment assistance to buyers.

Conclusion

There you have it! We hope you feel a bit more educated about the mortgage loan organization process now than you were earlier. These instructions can make you feel comfortable with what to expect ahead of buying a new property.