Origination

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DEFINITION of 'Origination'

The process of creating a home loan or mortgage. During the origination process, a borrower submits a variety of financial information - tax returns, prior paychecks, credit card info, bank balances, etc. - to the mortgage lender, who uses it to determine the type of loan the borrower is eligible for and what interest rate he or she will pay. The lender will also rely on the borrower's credit report and other information to determine loan eligibility.

BREAKING DOWN 'Origination'

Everyone must go through the origination process when obtaining a real estate loan, although the type of loan can vary greatly. The three most common loan types are fixed-rate, adjustable-rate and hybrid.

Fixed-rate loans carry the same interest rate for the life of the loan, adjustable-rate mortgages (ARMs) offer a rate that changes in conjunction with an index (like Treasury securities), while hybrid loans have features of both (typically they start as fixed-rate loans and convert to ARMs). In addition, some borrowers may qualify for a government loan, such as those offered by the Federal Housing Authority (FHA) and/or the Department of Veterans Affairs (VA).

These non-conventional loans are designed to make it easier for qualifying individuals to buy homes and typically feature lower qualifying ratios, as well as a lower or no down payment.

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