The loan processing system, also known as the mortgage loan process, is the way in which borrowers get approved for home loans and lenders minimize the risk of borrowers defaulting on their mortgage.
The process requires extensive documentation and multiple quality control checks at different levels to ensure that all the information provided is accurate and complete and that all the credit decisions made are well-informed. Mortgage loan processing involves multiple important steps. Some of these include:
Mortgage Pre-Approval
Pre-approval in the mortgage loan process is the way in which a lender will evaluate a borrower’s financial history to determine whether they are a good candidate for a loan. Certain criteria will need to be met to get pre-approved for a mortgage loan. Some of these criteria include their credit score, employment history, sources of income, and their debt-to-income ratio.
Pre-approval does not mean that the loan has actually been extended to the borrower. This is because loan approvals require further documentation (such as property appraisals and title information) for lenders to make an informed lending decision.
Mortgage Loan Application
At this stage of the mortgage loan process, borrowers will submit their mortgage loan application, also known as the Uniform Residential Loan Application (URLA), to the lending institution. This application requires a whole slew of documents to be submitted to support the loan application from the borrower’s salary, marital status, and employment record, to their investments, liabilities, and assets. Extensive details about the property they have set their sights on will also be required.
Further, details about the type of loan they need (refinance or purchase) will need to be submitted. Once all the required documentation has been furnished, the application can move on to the next stage.
Mortgage Loan Processing
Mortgage loan processing requires a title report, credit report, property inspection, and appraisal be ordered to uncover any legal or structural issues with the property that may require further investigation. In this stage of the mortgage loan process, the processor will examine the reports and appraisals for any faults from late payments and judgements to collections and delinquencies. The details contained in the application will be verified for integrity and accuracy.
The loan package is then generated and all documents submitted checked for completeness prior to submitting the loan package to the underwriter.
Mortgage Underwriting
The underwriter will analyze the application to determine the level of risk the borrower poses in terms of defaulting on their loan. They will review the borrower’s credit history, debt-to-income ratio, and their assets to predict their ability to meet their mortgage payments.
They will also examine the submitted documentation to ensure it complies with lending guidelines and requirements. They focus on capacity, collateral, and credit to come to their credit decision. They determine if the borrower has the financial ability to repay their debts, if they have a good history of paying down their debts, and how much collateral they have on the line.
Mortgage Closing
At this stage of the mortgage loan process, a Closing Disclosure containing the monthly projected payments, loan terms, fees, and final details of the closing costs will be given to the borrower. Homeowner’s insurance to cover any loss or damage from theft, fires, etc. will also have to be purchased. All closing costs and down payments have to be paid at this point.
After all the documents have been signed, the lender arranges for the funding of the loan. Once the mortgage note and the deed of trust have been recorded at the county recorder’s office, the closing agent delivers the final settlement costs so that final disbursements are made.
The processing of mortgage loans is a multi-staged process that is highly time-consuming and document heavy. From pre-approval to closing, each stage involves multiple, complex quality control checks and a high-level attention to detail. To ensure that an approved loan is exposed to as limited risk of defaulting as possible for lenders, mortgage process outsourcing companies are often hired for their expertise in the matter.
Consider working with a mortgage loan processing company that comes with a wealth of industry knowledge if you are looking for a mortgage that fits your bill.
Video – Mortgage
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