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When you’re thinking about applying for a mortgage to buy a house, you’re going to see a lot of terms you may have never seen before, including “mortgage loan origination.” Here’s what you need to know to understand the loan origination process.
Mortgage loan origination is the process of your loan being established. When you formally apply for a mortgage, the lender or loan officer “originates,” or initiates the loan (or, to be more precise, considering your request for one).
Initiating a mortgage typically comes with a fee, known as the mortgage origination fee, often equal to 0.5 percent to 1 percent of the loan principal. This fee might be as high as 2 percent if you’re a riskier borrower. The fee covers the time and cost of the lender reviewing and processing your application.
Since so many people need mortgages to purchase homes, the volume of mortgage loan originations acts as a barometer of the state of the housing industry and home sales. For example, the Mortgage Bankers Association figures show originations hitting a peak of $4.436 billion in 2021 and declining by half to $2.245 billion at the end of 2022 — a reflection of the dramatic rise in interest rates that slowed home purchases and refinances significantly. Similarly, real estate data analyst ATTOM’s fourth quarter 2023 U.S. Residential Property Mortgage Origination Report indicated the number of originations declined by 13.8 percent over Q3, which is a sign that the residential real estate market is still struggling to rebound.
As the lender originates your mortgage, be prepared to provide:
You might need to provide additional documents depending on which type of loan you apply for. For a VA loan, for example, you’ll need proof of military affiliation; for a USDA loan, you’ll need information about the property’s location. If you have a cosigner, you’ll need to provide information about their finances as well.
The mortgage loan origination process happens in stages, and typically takes between 30 and 60 days to complete. Origination speed varies depending on the lender, mortgage type and applicant’s credit. Generally, prospective homeowners can expect the following steps in the process.
Most borrowers will request preapproval from a lender as the first step in the loan origination process. A preapproval isn’t a firm commitment to lend, but it does show how much you’re likely to get if you meet all of the underwriting requirements and your financial circumstances don’t change substantially between the preapproval and the actual closing on the home.
Along with (or after) preapproval, you’ll have to complete a formal application for the specific loan type you’re after, which requires a thorough vetting of your finances and the property you’re buying. In addition to all the information you submitted for preapproval, you’ll need to share:
Once you submit the application, you’ll receive a loan estimate, a document detailing all the estimated costs of the loan you applied for. Lenders quote these costs upfront to allow borrowers to compare offers. You’ll receive the loan estimate within three days of applying, though in some cases, you may be provided with an immediate estimate.
During loan processing and underwriting, the lender and underwriters assess your information, sometimes called your risk profile, to see how much of a mortgage you can handle and pay back on time. The lender evaluates information either through a software program or manually — or sometimes both — to decide about loaning you a mortgage. At this time, the lender can approve or deny the loan, or ask for more information — that is, approve you conditionally. Don’t be surprised if you do get a request for more information: It’s very common.
The final step is closing, which typically occurs in person. Before that happens, you’ll receive a closing disclosure with a full outline of your closing costs and fees. Those fees fall into three categories:
If allowable changes occur, a revised loan estimate will be provided.
On the actual closing day, you’ll sign paperwork agreeing to the loan terms and the transfer of the property and get the keys to your new home. You’ll also be responsible for paying closing costs at this time, which includes the origination fee if your lender charges one. There might be other fees, as well, such as an underwriting fee or documentation preparation fee and title insurance and attorney fees. Be prepared to pay for those costs with a cashier’s check or a wire transfer — personal checks are typically not accepted.
You can negotiate closing costs in several ways. You may ask your lender for a discount, or for the seller to pitch in. You may also apply to roll the costs into your loan, which may save you money upfront, but can cost you more over the life of the loan.
The mortgage application process can be nuanced and complex, but there are a few steps you can follow as you prepare to move forward:
