Your loan origination process defines who you are as a lender.
Provided you’ve crafted something efficient, accurate, and equally friendly to lenders and borrowers, you’ll have landed on your secret sauce.
Still, that’s all easier said than done. And there’s no magic bullet for companies in this space. Your business has its own team with their own perspective and systems.
Below, we’ll be highlighting 7 stages involved in most loan origination processes. This breakdown is catered towards companies offering in-house loans and financing to customers. After highlighting these various facets, we’ll discuss potential technologies that can streamline the discussed procedures.
Stage 1: Prequalification
The prequalification stage kicks off the loan origination process. Generally, the prospective borrower must provide you with several pieces of personal and financial information.
This stage commonly includes an applicant’s combined household income, payment history, bank statements, and tax returns. Furthermore, the potential borrower must submit their current employment information with their hourly wage or salary.
After you’ve received this vital information, you must process the loan pre-approval.
Stage 2: The Application
Depending on your system, a prospective borrower will either complete a digital or paper application. Unsurprisingly, in today’s landscape, electronic versions are most frequently submitted to lenders.
Many products allow application processing to be done through mobile apps. Beyond that, collected information can be customized depending on the loan products.
There’s currently AI-based loan origination software available that removes much of the human involvement from the equation. Such innovations are why many applications are completed so quickly in today’s lending market.
Stage 3: Processing the Application
It’s now time for the appropriate department or team to review the loan application to ensure it’s accurate and complete.
The credit department (or other relevant parties) must check to see if 100% of the required fields are filled. In the instance that something is missing, the application will be returned to the prospective borrower. Alternatively, your credit analyst might have to contact the borrower to fill in the necessary blanks.
Nowadays, lenders really do thrive with the various high-functioning AI-based loan origination software on the market. These products shine during this stage because they flag incomplete or inaccurate applications automatically, drastically streamlining the process. From there, it can send back the paperwork to the applicant.
Before these kinds of capabilities existed, finance departments had to spend hours combing through documentation. Now they can focus on what’s most important to their given organization.
Stage 4: Underwriting
Upon the completion of an application, it’s time to start the underwriting process.
Throughout this, you’ll place the application under the scrutiny of multiple components and criteria. The following factors will be weighed:
- Credit score
- Risk scores
- Your additional proprietary scoring criteria:
- This will be unique to either your business or industry.
Again, given the AI-based LOS solutions available these days, this can all be performed instantaneously. Of course, there’s always the chance to perform manual underwriting in trickier circumstances.
Stage 5: Credit Decision
After you’ve underwritten the application, you can make the following decisions:
- Approve the application
- Deny the application
- Send it back to the originator for more information
Denials aren’t necessarily set in stone. It’s possible to adjust expectations and parameters, whether it’s a reduced loan amount, higher interest rates, or decreased payments.
Stage 6: Controlling the Loan Quality
Depending on your borrowers, lending can be stringently regulated. Thus, quality control is an absolutely pivotal component of loan origination.
In many scenarios, there’s a quality control queue wherein applications are thoroughly analyzed. Critical variables will be weighed against internal and external guidelines and frameworks.
This stage is akin to double-checking. It’s all about attention to detail to ensure everything is above board and makes sense.
Stage 7: Sourcing Loan Funds
Given the current technological landscape, most lenders don’t waste time providing funds to their approved borrowers. This transfer occurs nearly immediately after the loan paperwork is completed.
Though, depending on the nature of the loan, this timespan might increase. For instance, lines of credit necessitate extra time for legal compliance.
Leveraging High Functioning Loan Technologies
With a top-tier loan origination software program, the process is as immediate as it is pain-free.
There are various capabilities you should seek in this technology.
The product you end up purchasing should possess these functions and features:
- Compatibility with web, fax, and other channels for application receipts is a must.
- The option to share and receive credit bureau information online should be available.
- A weighted average should apply to the application and credit bureau data criteria to calculate user-defined credit scores.
- This software should allow you to make credit decisions automatically and manually.
- Flexibility is necessary when it comes to separately re-scoring each applicant.
- Time-sensitive promotions should work within the system (e.g., reduced rate or no interest offers).
- Your LOS should visually illustrate progress with completion checklists.
This is merely scratching the surface—the number of relevant, high-functioning features found in loan origination software seemingly never end.
In a more broad-stroke sense, this kind of system drastically cuts into operational costs and overhead. What’s most crucial is that these types of systems aren’t one-size-fits-all. The top LOS products on the market can mold to meet any given business’s specifications.
This customizability means you don’t need to spend time and effort changing your various processes to benefit from the technology. Instead, it fits into the facets involved in your loan origination system to provide lightning-quick time-to-market capabilities.
Streamline Loan Origination and Bolster Your Bottom Line
Whether you’ve spent years honing your loan origination processes or you’ve only just begun navigating this space, LOS solutions are a valuable investment.
For long-time in-house lenders, the vast AI capabilities found in LOS technology adjust to the systems you already have in place. They serve as additional support that only adds to the expertly designed practices you’ve spent years crafting.
With those relatively new to the industry, such software offers a sense of stability to loan origination. It gives you a framework to build and evolve your system as your lending services continue to grow.
Financial Network, Inc. has been building flexible loan origination technology for America’s financial institutions for over 30 years. Insight and experience leads to the launch of a loan origination and decisioning platform focused on lender growth and autonomy. The mobile-first FNI Blueprint™ LOS, paired with the FNI DecisionCore™ decisioning platform makes up the lender’s ultimate toolkit for contactless loan origination, decision testing, and strategy implementation. If you’re interested in learning how contactless lending can help level-up your workflow, talk to a lending technology expert today.