Loans are an amazing tool. They allow you to buy cars and homes and even start new businesses when you don’t have the immediate funds in your bank account. For many people, the process of obtaining a loan can seem foreign and intimidating, but if you plan to make any sort of large purchase in your life, you will probably have to talk to a bank or lending company, which means talking to a loan processor.
Loan processing refers to all of the steps involved from when you first apply for a loan to when the loan is closed. That’s a lot of time that involves a variety of different moving parts and personnel. Many people often wonder how long loan processing takes. Let’s take a closer look at loan processing procedures and how long they may take.
The Role of the Loan Processor
So, what does a loan processor do? Loan processors play a crucial role in helping you get a loan. They perform a wide range of tasks on behalf of the lender, from handling paperwork to generally assisting the broker or lender, but they do more than just take your file and submit it to the underwriter. Their main role involves double-checking and verifying all of the information that you have submitted to an application. That includes checking:
- Income and employment status (pay stubs and W-2 tax forms)
- Assets (checking and savings accounts)
- Existing debts (mortgages, student loans, car payments)
This is important as it improves your chances of getting approved and helps you catch any minor errors before the loan file goes to the underwriter. While it’s not impossible to make changes after your loan file has been submitted, underwriters can be strict and even the smallest changes may require extra time and red tape.
As a potential borrower, you are likely to spend more time with the loan processor than the broker or loan officer who first sold you the loan. That’s because the originator is generally there to sell you the rate and product. Loan processors aren’t supposed to negotiate or offer rates and terms. They are there to organize the loan file. This often means that some loan processors are more knowledgeable about loans than their more sales-oriented officers.
What is Loan Processing & How Does It Work?
Loan processing occurs in several steps. The first involves putting together the loan file, which essentially contains a potential borrowers loan application, along with any notes and comments about the borrower during the initial interview process. The loan application contains all of the personal and financial information about the borrower that a lender or broker needs to determine if they should be approved for a loan, including:
- The loan amount
- The purpose of the loan
- Repayment period
- Means of repayment
- Collateral or guaranties
The application is more intensive for those needing a loan for a business. Business loan applications require a detailed business plan, balance sheets, and current and projected income statements.
The loan processor will pull a credit report if it hasn’t already been provided. Many times the loan officer will have already run a report before the loan application process even started. It’s important to note that the borrower has to give written consent to have their credit report pulled.
Credit reports shows how you have handled and managed any past or existing loans, including car loans, student loans, and lines of home equity. The lender looks at these past financial transactions as a means of predicting your ability to pay back loans on time and in full.
If you need a loan for a car, boat, or house, you will also need to verify title records. A verification of the title helps the lender determine if the object you are requesting a loan for already has an existing lien.
The most important step in loan processing is verification of income, assets, and employment. The methods for verifying this information differs from lender to lender. Some may require written verification of employment in the form of a letter from your employer. Other lenders may simply request pay stubs and W-2 (or other) tax forms.
Still others will accept a verbal confirmation of your employment over the phone. Regardless of the method, income verification is important to loan processing and to getting an approval. Loan processors don’t want your monthly loan payments to take up your total monthly gross income. While much of this comes from lenders wanting you to pay back your loans, they also want you comfortably manage all of your financial obligations and daily needs on top of any new monthly payments.
Your loan processor may also need to seek professional appraisals, inspection, and insurance. The actual guidelines can differ based on local and state laws and the type of loan you want. For instance, if you want a home loan, you will need an appraisal, inspection, and proof that the home doesn’t have any termites. An appraisal is a means of determining your home’s current market value. This can keep you from potentially overspending on a home, but it also affects how much money you will actually receive for a loan.
Lenders won’t give you more money than the home’s actual value. Lenders will also require that you have a homeowner’s insurance policy. This protects you and your lender from any financial problems should your home suffer flooding, a fire, or other type of damage.
Lastly, if you are refinancing your mortgage or selling your current home to purchase a new one, the loan processor will request your payoff information. This is the amount of money you still owe on your home from your current lender. This helps a potential lender calculate the total final loan and the payment amounts.
Once all that documentation has been completed, your loan processor will double-check all the information to ensure it is clear, accurate, and correct. Any information that seems vague will require further clarification or notes that state why it is unclear. This is a crucial step in the process and could mean the difference between getting approved or rejected.
Once the loan processor has painstakingly double-checked and verified all the information, the loan file and all its documents are delivered to the lender, underwriter, and manager.
Factors That Affect Loan Processing Time
As you can see above, loan processing is a long and intensive procedure. The length of time differs from lender to lender, case to case. Most loan processing takes 45 to 60 days. The four main factors that affect the processing time are:
- Internal coordination – Your loan file is handled by several different teams during the processing phase. It goes from the loan processor to the underwriter to the settlement team. Some lenders may not be as coordinated, while others may be well-oiled machines that have streamlined the entire process.
- Amount of loan applications – You’re not the only person that a lender is working with. The economy is constantly fluctuating. If you know that interest rates in the housing market have gone down, hundreds of other people have as well. The sheer volume of applications can contribute to longer processing times.
- Regulations – Based on where you live and the laws in place, lenders, brokers, and borrowers may be subject to even stricter regulations. This forces the lenders to be even more precise when re-examining and verifying all of the documentation in a loan application. Employees may have to follow stricter guidelines and compliance checks to meet higher standards. This inevitably means longer loan processing, but remember that this is all to help you get approved for your loan.
- Verifications – The biggest delay to loan processing is obtaining all the necessary document verification. Lenders are responsible for evaluating a borrower’s potential risks before approving a loan request and documentation is often the only means of doing that. That may mean getting rental records from past landlords, acquiring mortgage history from credit bureaus, and speaking to employers to verify employment. This all takes a great deal of time, especially if these parties are hard to contact or not immediately cooperative.
How You Can Help to Expedite Loan Processing
Although much of the loan processing timeline is in the hands of the professionals, you can still speed up the process and simplify the lender’s job.
- Maintain availability – Don’t assume that your job is done when you drop off your loan file. Your lender will likely need more information during the processing and underwriting. They may have questions about your credit, lapses in employment, or sudden drops in income. Make sure you respond to these questions as soon as possible, and be honest and open about your information. Putting off on answers only adds further delays to loan processing procedures.
- Prepare your verification sources – Let your employer, landlord, and other parties involved in the process know beforehand that your lender may contact them. Stress that they should respond as quickly as possible.
- Stay accurate and honest – Accuracy is the best tool for reducing loan processing times. Excluding credit card accounts and employment history or lying about your debts won’t help you get a loan or secure a better interest rate. Leaving anything out or being less than honest only makes things harder for you and the lender, which only lengthens the processing time.
- Ask questions – Loan processing is complex, and there are probably plenty of things you don’t immediately understand. If you’re unsure or confused at any step of the application process, talk to your lender to clear things up. It’s better to address any issues as they arise instead of omitting information or documentation.
Del Toro Loan Servicing provides a wide range of services for borrowers, lenders, and brokers. Our team of professionals can help you efficiently process loans for approval. If you have any questions about loan processing or want to get started, please don’t hesitate to contact us today.