Definition
Loan origination refers to the complete process by which a borrower applies for a new loan, and a lender processes that application, which eventually culminates in either loan approval and funding or denial. The steps involved can include pre-qualification, the application submission, verification of the applicant’s credentials, loan underwriting, and loan closing.
Examples
- Mortgage Origination: A mortgage banking firm originates an average of 100 home mortgages loans per month. It involves salespeople soliciting REALTORS® for business. After the mortgage loans are originated, they are usually sold to an investor or to Fannie Mae.
- Personal Loan Origination: A personal loan company markets its services through online advertisements. Interested clients apply via the company’s website, undergo credit checks and income verification, and if approved, the loan is disbursed and the account is created.
- Auto Loan Origination: An auto dealer partners with a credit union to facilitate auto loan origination for customers purchasing vehicles. The process includes credit checks, income verification, and, once approved, the loan specifics, such as interest rates and repayment terms, are finalized.
Frequently Asked Questions
Q: What documents are typically required during loan origination?
A: Generally, you’ll need proof of income, proof of employment, credit history, financial statements, and sometimes an appraisal of assets.
Q: How long does the loan origination process take?
A: It depends on the type of loan. Mortgage loan origination can take 30-45 days, whereas personal loans could take from a few hours to a couple of weeks.
Q: What is the role of a loan officer during loan origination?
A: A loan officer assists in the entire loan origination process, from advising clients on suitable loan options, collecting necessary documentation, to underwriting and finalizing loan approval.
Q: Can loan terms change during the origination process?
A: Yes, interest rates and other loan terms can change up until the loan is locked in or the closing phase is reached.
Q: What happens if a loan application gets denied?
A: If a loan application is denied, the borrower typically receives a notification explaining the reasons. They may reapply after addressing the issues noted during denial or seek alternative lending options.
Related Terms
- Underwriting: The process where a lender evaluates the risk of issuing a loan to a borrower.
- Pre-qualification: An early step in the loan application process where the lender assesses if the potential borrower meets certain criteria.
- Closing: Final phase in the loan origination process where loan documents are signed, and funds are disbursed.
Online Resources
- Federal Reserve Education: Loan Origination
- Consumer Financial Protection Bureau
- Fannie Mae: Understanding Loan Origination
References
- Federal Reserve. (2021). “The Process of Loan Origination”.
- Consumer Financial Protection Bureau. “Guide to Loan Origination”.
- Fannie Mae. “The Steps of Loan Origination and Underwriting”, 2021.
Suggested Books
- Zuckerman, Sthal. Loan Officers’ Practical Guide to Government Loan Origination.
- Rosen, Malcolm. Mortgage Broker’s Handbook.
- Reinhold, Armand. Understanding the Loan Process from Start to Finish.
