Most people do not have the money to buy a house, car, or other big purchase out of pocket. That’s where loans come in, and if you ever have to deal with loans, you will likely have to talk to a loan processor. Understanding loan processing and the role loan processors play in obtaining a loan can feel complicated, but it’s simpler than you might think.
Loan processing essentially refers to all the steps that go into putting money into your hands and placing the loan in the lender’s books as an asset. It comprises everything from beginning to end, from the application to the actual disbursal of funds. Let’s take a closer look at the procedures that go into loan processing and the role of the loan processor.
The Process of Loan Processing
Loan processing can differ based on the loan company and certain local or state laws, but the general steps involved and the amount of time that loan processing takes carries over through any bank or lending company.
The loan file primarily contains the application for the loan along with any notes or comments about the applicant made during the interview process. The loan application is a document that provides the lender with all the essential financial and personal information about a borrower. It is by no means a pledge nor does it guarantee that the lender will give you the money. The application includes:
- The loan amount
- The purpose of the loan
- The repayment period and means of repayment
- Any guaranties or collateral
Most of the time, the loan officer will already provide the credit report for the loan processor before the loan application. As a potential borrower, you have to give your lender permission to obtain a credit report, which essentially features your credit history, including any current and previous loans, credit accounts, bankruptcies, and inquiries.
The credit report essentially helps the lending company evaluate your loan worthiness and, most importantly, your ability to pay back the loan based on your previous history.
The loan processor requires a verification of title for certain loans, mainly those for cars, boats, and homes. Title records help the lender determine if the object that you want to purchase already has a lien on it.
Verification of Income
This is one of the most important steps in loan processing as it gives the lender an idea of how you will pay back the loan. The loan processor verifies your assets, income, and employment information. Many lending companies and banks have different methods of verifying your income.
Some will require employment verification in a written letter directly from your employer. Other lenders can simply use a mix of pay stubs and W-2 or other tax forms. Some lenders may even allow a verbal verification of employment.
Insurance, Appraisals, & Inspection
Once the loan processor has verified your employment and income, they will proceed with proof of insurance and any necessary appraisals and inspection. The laws around these vary from state to state and depend on the object that the lender plans to purchase.
For instance, if you need a mortgage loan, the loan processor needs to appraise the property, perform an inspection, and, in some states, make sure that the house does not have any termites.
At this point, the main crux of the loan processing procedure is done. The potential borrower has turned in all the necessary documentation, including credit reports and proof of income and employment. The asset has been inspected and appraised. During this stage, the loan processor goes through all the previous steps and makes sure that everything is correct and up to date.
Any information that seems vague or may be scrutinized by the underwriter should be rewritten or further explained to state why information may be lacking. This is the loan processors opportunity to catch any mistakes or oversights before officially filing the loan and handing it off to the underwriter. Making any changes with the underwriter is much more complex and requires much more time and effort.
Certification & File Delivery
Once you and your loan processor have reviewed all the information and documentation in your loan file, they will finalize the package and submit the file to the underwriter, lender, and manager.
What is a Loan Processor?
In basic terms, the loan processor is the person who interviews those looking to apply for a loan. Sometimes known as loan clerks or loan interviewers, loan processors collect an applicant’s personal and financial information, prepare any documents that are passed on to ensure the proper closing of a loan, and keep all the information and records in order.
However, loan processors are more than just office clerks that submit your loan file. They play a crucial role in the loan approval process. Loan originators may make a mistake. The loan processor is there to double-check everything from employment information to the debt-to-income ratios to better improve the chances that the loan will actually be approved by the underwriter.
Without the safety checkpoint of loan processors between the originator and the underwriter, you could deal with a lot more red tape and eventually have your loan request denied. When the loan is approved, the loan processor makes sure that you meet all the prior-to-document (PTD) conditions before releasing loan documents to the bank.
It’s also not all about the applicant either. Loan processors work closely with the originator, title and escrow companies, and other entities to finish all the necessary paperwork and make sure you fulfill your PTDs. It’s a complex position that often involves a lot of moving parts.
As the potential borrower, you will also spend most of your time with the loan processor. The loan broker or officer is there to get you the loan. The loan processor assists the originator and organize the documents in your loan file. Many processors are more knowledgeable about the loan procedures than the loan officers, who tend to be more sales-oriented and sometimes lack the same volume or experience.
For mortgages brokered through a wholesale channel, two loan processors work together: one from the mortgage broker and one from the bank. The latter is usually known as an account manager. The mortgage broker sends conditions to the account manager for approval. For loans that come from retail channels, you will work with an account manager, who works with a loan officer at the bank to approve the conditions.
While there are slight variations in a loan processor’s duties as many lending companies delegate the responsibilities of loan originators, processors, and underwriters differently, the loan processor’s main job is verifying all the information that you submitted for your loan application, including
- Assets (checking and savings accounts)
- Proof of employment and income (pay stubs and W-2 forms)
- Existing debt (student loans, car payments, mortgage)
- Homeowners insurance (for those seeking a mortgage)
Loan processors pay particularly attention to your income as they do not want your monthly loan payments to take up your entire monthly total gross income. Although lenders do want to make sure they get their money back, many loan processors also want to make sure that you can comfortably manage your current financial obligations on top of a new monthly loan payment.
Loan processing is most often used when obtaining a mortgage for a new home, which is often even more intensive for a loan processor. When obtaining a mortgage, loan processors will make sure that you have homeowner’s insurance. A homeowner’s insurance policy protects you and the lender from suffering any financial problems if your home is in a flood, fire, or any other damaging incident.
Loan processors also play a big role in home appraisal. A professional appraisal essentially determines your home’s total current market value. The appraisal helps the lender determine how much money to lend you and if you will be getting more money than what the home is actually worth. If you are refinancing your home, loan processors will request your payment information from your current lender, including how much you still owe.
Loan processors also order credit reports, which show how you have handled paying back past forms of debt, including home equity, car loans, and student loans. This essentially helps the lender predict if you can pay off loans on time and completely.
Del Toro Loan Servicing is dedicated to delivering a wide range of loan and document preparation services. We work directly with brokers and lenders to help them achieve their goals while building greater education within the industry through seminars, videos, and more.
Our goal is to help clients become more profitable and improve private lending for all parties involved. If you have any questions or want to get started with the lending process today, please don’t hesitate to contact us online or call at (877) 335-8676.