Loan Origination

If you want a loan you should expect to wait for the origination process before approval

"Origination is the multi-step process every individual must go through when obtaining a mortgage or home loan, as well as other types of personal loans. During this process, borrowers must submit various types of financial information and documentation to a mortgage lender, including tax returns, payment history, credit card information and bank balances. Mortgage lenders use this information to determine the type of loan and the interest rate for which the borrower is eligible."-Investopedia

The loan process known as "origination" is a way for lenders to prove- to regulators and to other financial institutions (selling debt is a still a highly profitable and popular trade)- that their claim on the future interest revenue streams of a home loan or a business loan has been properly vetted and the risk has been documented and deemed acceptable and legal.

Below are the origination steps for a typical transaction. Each step must be completed before moving on to the subsequent step.

1). Pre-qualification - The first step in the loan origination process is pre-qualification. During this stage the potential borrower will receive a list of items they need to pull together to submit to the lender. This may include:

• Employment information
• Household income
• Payment history
• Bank statements
• Tax returns

2). Loan Application - Submit an electronic or written application with loan request specifics such as amount, rate, payment schedule, etc. to the lender.

3). Application Processing - Lender reviews application and pre-screens to ensure no time is wasted on obviously unacceptable parameters.

4). Underwriting Process - Lender or a 3rd party perform rigorous manual and/or automatic review of the loan application looking such items as credit score, risk scores and other proprietary scoring criteria to ensure the loan is not only serviceable but profitable- "worth the risk" so to speak.

5). Credit Decision - Lender approves, denies or sends the application back to the potential borrower for adjustment of loan terms (a higher rate concession for instance) before reappraisal.

6). Quality Control - Last and important final check before funding goes through. This addresses the time gap between the beginning and end of loan origination which present new risks that were not known at the beginning of processing. Some lenders skip this step, unfortunately.

7). Loan Funding - Most consumer loans get their funding disbursed shortly after the loan documents are signed while second mortgage loans and business lines of credit are typically scrutinized a bit more before the borrower is issued funds.


Reference: https://www.decisivedge.com/blog/7-stages-in-loan-origination/