What does 'Origination' mean

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.

BREAKING DOWN 'Origination'

Lenders also rely on other information, especially the borrower’s credit report, to determine loan eligibility.

The origination process is often lengthy and involves a number of steps. The loan origination fee, which is usually 1% of the loan, typically covers this process.

Pre-Qualification

Pre-qualification is the first step of the process. The loan officer meets with the borrower and obtains all basic data and information relating to income and the real estate property that the loan will cover. This is when the lender determines the type of loan for which the individual qualifies, which is usually one of three common loan types. Fixed-rate loans have a continuous interest rate for the entire life of the loan, while adjustable-rate mortgages (ARMs) have an interest rate that fluctuates in relation to an index, similar to Treasury securities. Hybrid loans feature interest-rate aspects of both fixed and adjustable loans. They most often begin with a fixed rate and eventually convert to an ARM.

Some borrowers may be eligible for a government loan, such as one provided by the Federal Housing Authority (FHA) or the Department of Veteran Affairs (VA). These loans are considered non-conventional and are structured in a way that makes it easier for eligible individuals to purchase homes. These loans often feature lower qualifying ratios and can have a smaller or non-existent down payment.

During this step, the borrower receives a list of information needed to complete the loan application. The extensive required documentation includes the purchase and sale contract, W-2s, profit-and-loss statements (for the self-employed) and bank statements. It also includes mortgage statements if the loan is a refinance of an existing mortgage. The lender may also request additional documentation.

Loan Application

During this stage of the process, the borrower fills out an application for the loan and submits all the necessary documentation. The loan officer discusses which loan options are available and helps the borrower choose the one that is most suitable. The loan officer completes all legally-required paperwork to process the loan.

Loan Filing

The process is now out of the borrower’s hands. All paperwork submitted and signed up to this point is filed and run through an automatic underwriting program to be approved. Some files may be kicked to an underwriter for manual approval. After approval, the loan officer schedules a closing, gets the appraisal, requests insurance information, and sends the loan file to the processor. As a follow-up, the processor may request additional information, if necessary, for reviewing the loan approval.

RELATED TERMS
  1. Loan Officer

    Representatives of banks, credit unions and other financial institutions ...
  2. 100% Mortgage

    A mortgage loan in which the borrower receives a loan amount ...
  3. Refinance

    1. When a business or person revises a payment schedule for repaying ...
  4. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
  5. Standing Loan

    A type of loan where payments are made of interest only. Repayment ...
  6. High Ratio Loan

    A loan of any type for which a relatively small down payment ...
Related Articles
  1. Investing

    Financing Basics For First-time Homebuyers

    If you're looking to get your first mortgage, there are many financing options available.
  2. Investing

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
  3. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  4. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  5. Personal Finance

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  6. Investing

    Commercial Real Estate Loans

    Obtaining a commercial real estate loan is quite different from borrowing for residential real estate. Here's what to expect and how to get what you need.
  7. Personal Finance

    Home Improvement Loans: What Are Your Best Options?

    If you plan on taking out a home improvement loan, you should know what your options are and which ones might be best for your situation.
  8. Personal Finance

    The New Mortgage Business: More Than Just Loans

    Many mortgage brokers adapted to the post-subprime environment by becoming loan modification specialists.
  9. Retirement

    Business Owners: A Guide To Qualified Retirement Plan Loans

    Thinking of adding a loan feature to your company's plan? Here's what you need to know.
  10. Personal Finance

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
RELATED FAQS
  1. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  2. How do construction loans work?

    Construction loans are obtained either by the prospective home owner or the actual builder. There are two types of construction ... Read Answer >>
  3. What’s the Difference Between a Mortgage Lender and a Mortgage Servicer?

    Buying a home is an exciting and confusing process. Once the loan is secured, it's important to know who gets the payment: ... Read Answer >>
  4. Which is better, a fixed or variable rate loan?

    Interest on variable interest rate loans vary as market interest rates change. Interest on fixed interest rate loans will ... Read Answer >>
  5. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
Trading Center