Just like in the legal industry, the financial and mortgage industries are full of jargon and complicated terminology. Fortunately, mortgage origination has an easier synonym: the mortgage process from beginning to end. Origination is a big word for a big process, but we’ve broken it down into just a few important points.
When you, the borrower, visit a loan originator in order to obtain a home loan, you will go through origination to get those funds. In other words: To get a mortgage, you need to visit a lender and speak with a loan officer. Origination includes four major steps: pre-approval, mortgage application, loan processing, and closing. Each of these steps includes several other steps, but those are typically completed by the lender themselves.
Pre-approval: The first step in the mortgage process is getting a pre-approval. These days, with the housing market exploding, it’s practically a necessity. A pre-approval letter from your lender will push you to the front of any pack of borrowers all vying for the same home. It proves that you are able to purchase the home without an issue – and that your mortgage application will likely be approved as well. In the mortgage process, a pre-approval requires most of the same documents that a regular application does – meaning your loan application step of the process will go much quicker and smoother.
Mortgage application: At this point in the process, you’ve picked your home and put in an offer. Your lender will match your qualifications against whichever loan product you choose (FHA, Conventional, etc) and collect all documents you will need to pass through loan processing and underwriting. This stage requires a lot of communication between the lender and borrower. Be sure to keep an eye on your phone and email in case your loan officer needs some more information from you – the quicker you provide that information, the quicker your loan can be transferred to the next step.
Loan Processing: As one of the last steps of the mortgage process, your loan is processed and sent to underwriting. During this stage, your loan will be checked for accuracy. Your application will be checked over by an underwriter in order to make sure you can afford to pay the monthly payments. In order to make that decision, underwriters need access to your bank records, your job records, and your credit score. Your credit score is the most important part of your loan application – it determines whether you can get a loan or not and what your interest rate will be once you do get the loan.
Closing: Finally, when your application has made it through underwriting, you are given the “clear to close” stamp of approval. At this step, your loan officer will send you a Closing Disclosure which will provide you with all of the finalized details of your loan. It will include any terms and conditions, your interest-rate, the expected monthly payments, and any origination and other closing fees. Then, it’s time to sign everything and get the keys to your new house! This is traditionally done around a table with both the buyer and seller present, however, e-signatures are becoming more and more popular.
During closing, you are expected to pay for some things up front: a down payment and closing costs. These closing costs are typically a few thousand dollars, but can differ per loan. Part of those closing costs are origination fees. These fees are compensation for the lender for work done during the processing and underwriting portions of the mortgage process. They are typically between .5% - 1% of the home’s price – often around $1,000-$2,000.
In rare cases, origination fees can be waived and replaced by a higher interest rate or points against your mortgage. Remember, even if your fees are waived at closing, the lender still needs to get paid! Those fees will come out of your pocket through extra interest payments or points regardless. You are likely better off paying the fees upfront unless you know that you won’t be living in your home for very long or plan to refinance quickly.
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