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Home Loan Origination (HLO)

What is home loan origination process?

Loan origination or home loan origination is the multi-step process of getting a mortgage or a home loan. The origination process usually starts with a preapproval. A preapproval helps determine a homebuyer's budget and takes place before a real estate agent brings the buyer to look at homes. Whether independent or part of a financial institution, mortgage brokers act as financial advisors for home loan origination and can help homebuyers choose the type of loan that will work best for them.  

A loan officer will gather information to determine the budget amount, including the buyer's credit score, desired life of the loan, employment history, and debt to income ratio. Based on the type of loan and the borrower's financial circumstances, the mortgage officer will complete an application to provide a loan estimate. The estimate includes important details, like the down payment amount, potential closing costs, and the monthly payment. The loan goes through processing and underwriting, where the candidate is evaluated. After this is complete, the lender can either approve the candidate for a loan or deny them.

An application fee may be charged by a lender to complete the origination process. 

If a buyer is approved, the preapproval locks in the mortgage rate for anywhere between 60-180 days. If the buyer does not find a home within that time frame, the origination officer can extend the preapproval to maintain the fixed rate.

Once the potential homeowner decides to buy a home and the seller accepts their offer, a mortgage broker will generate the loan and complete the home loan origination process at the closing. The loan is inclusive of the down payment, closing costs, escrow, and any additional fees, including possible documentation fees, origination fees, underwriting fees, that need to be paid by the buyer.

Home loan origination helps businesses by:

  1. Safeguarding the lender from approving a loan where the buyer is unable to make payments
  2. Proactively managing risk related to defaulting on loans and foreclosures  
  3. Creating transparency by removing surprise fees from the process  

 

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