Understanding the loan application process is vital to increasing your chance of being approved for the loan you are applying for. You and the loan officer will work together to help you gather the necessary information and documents to prequalify for the loan. Therefore, before you start filing a loan application form, you might want to familiarize yourself with the process.
Below is the step-by-step process of a loan application. Start reviewing it to have an overview of what you can expect.
Pre-qualification describes a credit assessment completed by the lender according to the information provided by the borrower. Before providing a pre-approval, the lender must prequalify a borrower by evaluating their creditworthiness.
It’s a vital step in filing a loan as it can estimate how much the lender is willing to lend you. The lenders will use any existing information about you to perform the pre-qualification process. Lenders will also perform soft credit inquiries to be able to provide a close estimation of your pre-qualification stage.
Filing of Loan Application
After the lender performs a pre-qualification and you have received the result, the next step is to file for the loan application. First, you must complete a loan application form providing accurate and necessary information.
You can file a loan application using the traditional method, where you will need to visit the lender’s office and file the loan there. However, the modern-day world is leaning more toward the new way of a loan application, which is done online.
There are various ways you can complete an online loan application process. One is by visiting the lender’s website through your browser, and the second is by using the online lender’s mobile app via your smartphone. Whichever you prefer, applying for loans online it’s the most convenient way to file a loan application.
Once you’ve successfully submitted your loan application, the pre-approval process will start. During this step, the lender will review the information you provided on your loan application form. The lender will also perform a credit check to help them evaluate your application correctly.
You must remember that a credit check differs from a background check. Lenders usually perform a background check to know that they will lend money to qualified and truthful applicants.
Meanwhile, lenders do a credit check to know about your credit score and evaluate your creditworthiness better. However, between background check vs credit check, the credit check is the most common thing that lenders perform.
After the credit check, the lender will send you a letter stating a more exact loan amount you can acquire. Remember that the loan amount from the pre-qualification may differ from the loan amount of the pre-approval.
Processing of the Loan Application
Once the pre-approval process is completed, the next step is processing your loan. During this step, your application will be forwarded to the credit department to review the completeness, accuracy, and truthfulness of the information you provided.
Once some information is lacking, the application will be returned to you or the credit analyst who will request the said information. Lenders nowadays are using LOS or Loan Origination System, an automated system that will help the lender know the borrower’s creditworthiness. It helps lenders establish an excellent workflow to process a loan. The system can flag any files with missing fields.
The next step is the underwriting process, when the application is checked and confirmed. In this step, the lender will verify your income, assets, and existing debts. They will also check the property data for them to provide a final decision on your loan application.
Underwriting is done internally, but this doesn’t mean that the lender will not involve you during this step. Expect the lender to contact you to request additional information and documents to help them make the right decision.
The decision-making step will depend on the result of the underwriting process. Your application can be approved, denied, or sent back to the originator to request more information. Once specific details don’t match the information in the system, some adjustments will be made, such as reduced loan amount or changes in the interest rate.
This is the step where you’ll know the standing of your application. Your credit record will have the most bearing on the lender’s decision. That’s why having a good credit score is vital to increase your chance of your loan being approved.
Release of Funding
Now the most exciting step of your loan application is releasing the funds. Most loan funds are released right after the necessary documents are signed. This is when you’ll sign the contract between you and the lender.
Remember to read whatever documents before you sign. It’s also best to ask questions if there are some clarifications you need regarding the contract. You should take this opportunity and clear any questions you have in your mind.
Start Your Loan Application Process Now
Now that you are familiar with the step-by-step process of a loan application, you can start filing for a loan application with your favorite lender. Use the information you acquired today as a guide to help you with your loan application.