Standard Lending Process
The process of getting a loan requires 3 phases: application, underwriting, and closing. In the application phase, the person in need of a loan (the borrower) provides documents and information so they can be pre-qualified for a loan. In the underwriting phase, the lender reviews and analyzes this information for accuracy and to determine if the borrower is eligible for the loan. If approved, the borrower will sign an agreement to the terms and conditions of the loan. In the closing phase, both the lender and the borrower have committed to the loan and now sign the necessary documents to finalize the loan.
What is a Loan Origination System?
A loan origination system (or LOS) is any software that digitizes the lending process from start to finish. LOS takes the documents that are required for a loan/mortgage application and digitilizes them so the borrower can apply for a loan online. Each document is digitilized and even allows the borrower to leave an electronic signature so the entire process can be automated. The goal of a loan origination system is to make the lending process easier and faster for both the borrower and the lender. The end product of a loan origination system is a product that allows a borrower to obtain a loan without leaving their home and allows the broker to facilitate this loan without manually checking documents or having to physically meet with the borrower.
How LOS helps the lender/broker
The main benefit of a loan origination system is that it makes the lender’s job easier. The lending process is very tedious and labor-intensive. Without a LOS, the lender will have to go through a lot of manual processes that not only take effort but also time. With a LOS, lenders can save themselves from having to enter repetitive information and can avoid reviewing pages and pages of documents to make sure everything is filled out correctly because the system will do that automatically.
A loan origination system will also help lenders process a greater quantity of loans, increasing their rate of production and their profit. So really, this software is essential to help a bank or broker grow. LOS also reduces the risk of mistakes and inconsistent decisions because there is now less room for human error.
With the digitalized loan process, lenders can now focus on other aspects of their business such as marketing or customer relationships. This allows the process as a whole to improve because lenders can be more intent on helping borrowers through the lending process and making it run smoothly.
The borrower is likely uneducated about the process of a loan or mortgage as well. A LOS is an easy way to educate the borrower throughout the process without needing the assistance of a bank or broker. This is just another example of a task that is taken off of the broker’s plate.
This technology shifts the focus of lenders away from the loan itself, and more towards the relationship with the borrower. LOS also helps with this aspect of business as well. (the next generation of home buyers and therefore the most likely to apply for loans), prefers online processes. Loan origination systems help the lender cater to the borrowers’ wants.
How LOS helps the borrower
Loan origination systems provide just as much aid to the borrower as they do to the lender/broker. Generation Z is the upcoming generation of homebuyers, which means they are the next generation of applicants for loans and mortgages.
Gen Z prefers digital options over physical ones but still wants to feel like they are working with a real person rather than artificial intelligence. In addition, 60% of Gen Z consumers say they wouldn’t use a product that is slow or hard to operate. So the main issue that borrowers are concerned with is the ease of use.
A loan origination solves the main problems that borrowers have. It allows users to navigate the loan or mortgage process with easy step-by-step instructions. This option is also far less time-consuming than the traditional loan/mortgage process so borrowers can get their results faster.
Loan Origination Systems (LOS) help the mortgage and lending procedures run faster and smoother by digitalizing documents and automating the process. Brokers and banks can facilitate more loans, and facilitate them better because they can now focus more on the service side of their business. Borrowers can walk through the process easily, and from anywhere they want to.
Frequently Asked Questions
- What is the difference between underwriting and loan origination?
- Underwriting is just one of the steps required in loan origination. Underwriting is only when a lender checks the financial background of the applicant before finalizing the mortgage.
- What is loan origination?
- Loan origination is the process that takes a loan application from the borrower and through the lender, allowing them to process it and possibly supply funds for the loan.
- What is the difference between LOS and POS?
- LOS stands for loan origination system and it is software that allows lenders and brokers to automate the mortgage process. POS stands for point of sale and it provides the actual point of contact between the seller and the buyer.