What Is The Loan Process and What Goes On Behind The Scenes? (2024)

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• Lou Salvino
• December 13, 2022
• 8:43 pm
• No Comments

What Is The Loan Process?

The Loan Process, in general terms, refers to the steps involved in inquiry, application, submission, due diligence, tracking and closing a mortgage loan. The process can be slightly different for every mortgage company and broker. However, it usually involves the following:

• Inquiry from the client, interview, discovery – Do we have a fit?
• Gathering information and supporting documents from the client – including application
• Underwriting, review, due diligence, verification of data, questions, mitigation, qualification, deal structuring, preparing the loan submission
• Submitting information and data to lender(s) or to adjudication department (decision maker)
• Deal with further questions, supporting documents, deal structuring, if any, by lender or adjudication department
• Tracking the loan through to unconditional approval or conditional approval and closing
• Deal with any outstanding conditions, work for all clear file, coordinate third party activities such as lawyers, appraisals, etc.
• Closing of the mortgage and creating, maintaining long-term relationship with the client ongoing including annual check ups and reviews.

Is The Loan Process A Big Deal?

Sure is. If you ever have the privilege of dealing with a lender or broker without a loan process, or that is not familiar with their process, you will quickly understand the importance. It is a very big deal.

Most reputable lenders and brokers will concur the loan process is the most important function of their operation.

Yes, getting you as a client, having great products, great service, competitive rates are important too. But drop the ball on loan processing and you will start to be in trouble quickly.

You see, after your initial inquiry and interview and once you have supplied some basic information, it does not take much time to figure out the best funding solution options for your situation. However, it takes a lot of time to ensure you get the recommended solution approved and then processed efficiently so that your money is there on closing date, without fail. “Cash on the barrelhead” as they say. It is so important not to have issues and possible delays on closing.

In addition, if a lender or broker does not have a good loan process system in play, it can take away from their sales strategy and customer service. They don’t want that and neither do you.

As a client, this part of the process is like the dentist. Its required, but enjoyable, not so much. You have to gather and supply some information. At first, it can seem overwhelming. But you will soon find most of the questions and information you will be asked should be relatively easy to access and supply. The other part that can make it difficult as a client is the waiting. This is not fast food. Sometimes it takes a while to hear back on your credit decision. Be patient. You deserve to be kept apprised with the timelines and as long as you are, be patient. On the other hand, don’t settle for broken promises and unsubstantiated excuses. This is a business transaction after all, and for you, a very important one.

From a client’s perspective, this is the biggest and best part of the experience or should be. However, also the part most clients do not enjoy. Again, its mostly due to the documents, how complex it all seems and of course the waiting. In addition, you may have an implied or contractual deadline, such as a financing condition with an anxious vendor waiting as well. So, if the loan process is not on point, this could be a very frustrating experience.

Don’t worry though, it most cases, this goes very well as long as you provide the information and let your people do their job.

So, What’s Involved In The Process?

Well, we suspect each lender or broker has their own process and variation. But essentially, it is a repeatable workflow. A system designed to keep things running smoothly and to keep things from slipping through the cracks. A system to help make the client experience a good one.

Every process has to continue to evolve and get better over time. It must be continuously reviewed, refined, and improved. But for the most part, it will go through a series of stages to get your loan from inception to closing.

• Initial client meeting (discovery, needs assessment, possible program, product, rate, terms, conditions). Review required information.
• Collect application from the client(s)
• Collect Supporting Documents from the client
• Underwrite the transaction – If qualifies, prepare for pre-approval, or approval as required.
• Submission for Approval to Lender, Adjudicator, etc. (decision makers)
• Secure commitment or pre-approval.
• Client review, acceptance, signatures, etc.
• Review and start finalization of any remaining funding conditions
• Organize third parties such as legal, appraisal.
• Keep all parties in the know, legal, appraisal, real estate agent, etc.
• Secure all clear with lender, no further conditions, ready to fund, transaction instructed to lawyer or legal department
• Final closing

There are going to be many variations of the above. But, essentially, the workflow/process is a system that will get you from inquiry to closing date as quickly and efficiently as possible.

A Good System Is Trackable

With today’s technology (even without) your provider should have fail proof systems in place to track your deal flow and progress and keep you apprised along the way. Further, it keeps them apprised to ensure your deal is flowing and will close as scheduled.

They must know, at all times, what stage your deal is at. Sometimes, there are two or three stages overlapping and being worked on simultaneously. Each provider will use a different system. It’s all good as long as it does the job.

Loan Processing Automation

Unfortunately, this is where the industry has failed miserably in my view. Mortgage transactions were completed with less than two dozen pages of documents in the past. Sometimes, and often, under a dozen. Mortgage transactions were completed in under 15-man hours, often much less than that.

Years later, and with today’s resources and technology, mortgage files have hundreds of pages of information, that frankly, not sure who would review most of it. Further, the number of hours to complete a mortgage transaction has increased exponentially. And, increasing annually.

This makes no logical sense. Look around other industries. Look at technology. Look how far we have come. The industry as a whole has failed in this regard.

For the most part, this is due to compliance and to keep the consumer safe. So that part is good. I just wish that technology and processes can somehow start to catch up and close the gap again to make life easier for all.

But, from a client perspective, there is a lot more automation that makes your experience much easier and cleaner, even if not necessarily faster. This includes online application, portals, virtual signing, real time progress views, etc.

Also, from a client perspective, there is still a lot of human touch where it matters. Setting up your loan strategy and structure, recommending best products and services, providing human touch customer care before and after service. Humans will solve your problems, not a computer. This is good information for you to know.

In the industry, automation is implemented for things computers can do faster, less expensive, and more efficiently than humans. Usually, this is data processing, data intensive and repetitive procedures.

The software and technology that does exist in the industry is tremendous and continues to improve. This helps your provider give you mistake free information and processing.

Transaction Exceptions, Mitigation and Structuring

Its not a perfect world full of perfect deals. Even the so called “in a box” lenders have to look at different ways to structure a transaction. This is what separates the good from the bad in the industry.

There will always be some element to a transaction that needs to be mitigated, request exception or needs to be re-structured all together. So, if most loans have one or more peculiarities, this alters the process and workflow and may cause you some delays in receiving a response.

Unless you have the “perfect deal”, please try to understand this, and let your provider do their job.

Now, a good provider will have a clear path on how to deal with these matters as part of the work flow. So, it should not slow you down too much.

Checklists and Condition Lists

Many providers use checklists and conditions lists to keep you updated on where they stand with your deal so you can track. Some even provide you with online access.

This can be great for you, so long as the humans responsible for the updates are in fact updating.

So, there must be processes, systems, and procedures to ensure that your loan process is carried out efficiently. But, nice to know where you stand as well.

For most lenders, each deal is slightly different so their workflow and checklist is dynamic and will change on the fly as required. For you the client, you need to know where you stand with documentation and where you stand with reaching milestones.

Last But Not Least – Our Friendly Advice

So, now you have an idea about the loan process. But what can you, as the borrower, do to make it a better experience?

• Be responsive to your lender. Make sure to respond promptly to questions and document requests to keep your application moving forward.
• Let the process play out and don’t be a nervous nelly. Yes, you need to know what’s happening behind the scenes to an extent. But don’t be interrupting the flow either.
• Avoid taking on new debt. If your mortgage is being processed, , don’t open new credit cards or make any other major financial changes. New loans or other changes that affect your debt-to-income ratio could get in the way of your mortgage approval.
• Review your documents. Ask questions. Understand. Don’t plan on calling your provider 6 months after closing saying you did not know this, or were not aware of that, etc. That is on you. You are or may be overly excited to get your approval, but slow down. Make sure your mandate was met and that the product being offered meets your requirements.
• Arrange for your down payment and closing costs. Ensure you have an accurate estimate in front of you. No surprises. Even if you are refinancing. Get an estimate. How much money are you getting back or how much do you have to pay on closing.

Then, on closing, you can unlock the door and celebrate your new home!

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