CHAPTER 3 How the Loan Process Works from A t om A to Z
Understanding the loan process from start-to-finish is the best way to ensure smooth sailing and issue-free closing. Knowing what must be done, when it must be done — and subsequently if it was done — is the best defense against lender obstacles and unexpected delays. The loan process comprises four phases: origination, processing, underwriting, and closing. Most lenders’ loan procedures go through this process or some version of it. The origination of a loan is pretty straightforward: a buyer decides to enter into a loan agreement with a particular lender. This is the origin of the loan, hence the term origination. Processing is also just what it sounds like: the loan is processed by the lender. Processing usually includes filling out lots of forms (and I mean lots of forms), answering questions, and providing various documents to the lender. Underwriting is the step of lending that some people don’t know much about. When a loan goes through underwriting, a specialist compares the processing stage results against the lender’s requirements and standards to decide whether to approve or deny the loan. In other words, underwriting is kind of like the spell-check of the loan process, where someone goes through the materials with a fine-toothed comb to make sure everything is on the level. We’ll go more in-depth with underwriting later on in this book. 9
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