Loan Origination Software

The mortgage loan origination process can be costly and time-consuming. This is where mortgage loan origination software (LOS) comes in handy. Good mortgage loan origination software simplifies the loan application process and makes the transaction, from origination to closing, a breeze.  

But what exactly is loan origination software? What are the key benefits? And which parts of the loan origination process does it simplify?  

In this article, we will tell you everything you need to know about loan origination software.   

What is a loan origination software? 

Loan origination software (LOS) enables financial institutions to automate and manage the workflow of all steps of the lending process. The steps in the loan origination process that this type of software is best used for include: 

• Loan application 
• Underwriting 
• Credit approval 
• Documentation 
• Pricing  
• Funding 
• Disbursement or the rejection of the application 

Loan origination software also integrates with other front- and back-end applications of lenders to exchanged communications and data for delivering a seamless digital lending experience. Additionally, loan origination software complies with industry and regulatory standards to eliminate security breaches and protect users’ data. Typically, loan origination software is used by financial institutions to manage the activities of consumers, retail, commercial, SBA, SME, or mortgage lending—all in one centralized space. 

What are the benefits of loan origination software? 

Mortgage origination software allows users to manage and automate all stages of the lending process, everything from data collection to fund disbursement to digitizing the entire experience. This allows mortgage lenders to process and approve (or deny) home loans more quickly. But this is not the only upside to loan origination software.  

There are the benefits of loan origination software in the mortgage space: 

1. Improved customer experience 
2. More accuracy 
3. Higher productivity 
4. Better decision making 
5. Enhanced fraud detection 
6. More consistent workflows 
7. Improved regulatory compliance 
8. Analytics to improve lending practices  
9. Eliminating paperwork 
10. Saves money 

Here is a closer look at each of the benefits of loan origination software: 

1. Improved customer experience 

Document process during the mortgage origination and close can be time-consuming, ranging from a few weeks to, in some cases, several months. When you factor in that many borrowers have families and full-time jobs, coordinating with lenders can become even more difficult. This is why loan origination software comes in; it not only simplifies operations but digitizes the process, making it easier for customers—and improving their experience. 

2. More accuracy 

When applying for a home loan, lenders can be forced to pull an applicant's information from numerous sources. Since manual data entry can be prone to errors, it can take more time throughout the mortgage process to fix it. However, loan origination software automates the process and provides work that is less prone to error. The result is more accuracy as well as faster processing.  

3. Higher productivity 

Repetitive tasks in the mortgage application process—like numerous interactions between borrower and lender, paperwork, negotiating terms, etc.—make it difficult to close deals faster. By simplifying the process, loan origination software enhances productivity tenfold. Eliminating misplaced paperwork and speeding up the review process means lenders can close more home loans in less time. 

4. Better decision making 

Because it automates the rules applications need to qualify, loan origination software can approve qualified applicants faster. This mortgage software can also more quickly reject applicants who have no credit history or poor credit, freeing up lenders to focus more of the time and energy on growing their business.  

5. Enhanced fraud detection 

Loan origination software allows mortgage lenders to leverage the strength of predictive analytics to enhance fraud detection. This mortgage software helps lenders calculate the risk of approving loans to each individual homebuyer. Automation also enables mortgage lenders to configure what home loan types require fraud analysis, reducing the probability of frauds and losses. 

6. More consistent workflows 

By cutting down on variables such as data entry, processing, and document collection, among others, loan origination software can streamline multiple workflows. Not only does this mortgage software speed up the process, but it also allows you to standardize the operation for heightened efficiency. Thanks to digitalized steps, you can collect more data—and more data means better analysis.  

7. Improved regulatory compliance 

Mortgage lenders must comply with government regulations and manage the risk that comes with the lending process. Mortgage origination software improves regulatory compliance and helps to maintain a lower risk profile, therefore improving quality and consistency. For instance, if the government updates a regulation, mortgage lenders can modify their terms and conditions instantly and update each stakeholder.  

8. Analytics to improve lending practices 

Loan origination software is the best way to use analytics to improve your mortgage lending practices. You can utilize the data to determine how well you are performing and how you can improve the customer experience. You can even dig deeper to determine the various factors that impact loan performance, accept applications, and identify kinks in the system—all of which will improve your lending practices. 

9. Eliminating paperwork 

Mortgage lenders use loan origination software to eliminate paperwork, which also means eliminating hundreds of files to search for each borrower’s data. LOS access this information within minutes, if that. Self-serve portals are also becoming more popular among lenders, either as part of the loan origination software or as a stand-alone application that is integrated with a CRM solution. Using these forms means lenders can move the entire operation online, saving both time and money. 

10. Saves money 

Loan origination software enables lenders to save on time and cost by automating repetitive processes. Lenders can also substantially reduce bad loans by using comprehensive borrower profiles and validating their information from numerous sources.  

Using mortgage software can also save money for financial institutions because they no long have to employ people who do data entry. And instead of wasting time finding information from various sources, employees can also focus on other tasks that require more attention and have the potential to be more lucrative. 

What is a digital loan origination system? 

A digital loan origination system provides borrowers access to online applications and omnichannel support. This means that a borrower can begin an application through a self-service channel and only start working with a banker at a point in the process that makes the most sense for the borrower.  

Let’s look at the benefits of a digital loan origination system to gain a better sense of what they are and if they are right for you: 

1. Regulatory compliance 
2. Credit accessibility  
3. Best-in-class service 

Here is a closer look at the benefits of a digital loan origination system: 

1. Regulatory compliance 

Mortgage loan applications can be unwieldy, due in part to long paper applications that must be filled out—sometimes multiple times with the same information. And a lot of information that borrowers must include in these applications the banks usually already have.  

The downside to this is that when borrowers become confused with the process, they tend to leave important parts to the banks or give the wrong information. If errors in the application process are not caught by bankers or credit officers, issues with regulatory compliance—and any ensuing consequences—are more likely to arise. 

This is when a digital loan origination system can come in handy, since they digitize applications and pre-fill it with the data the financial institution already has on the borrower. Additionally, most digital LOS will not let a borrower submit a partially completed application or financial statement, further ensuring regulatory compliance.  

2. Credit accessibility 

Applying for credit can be intimidating. It often includes lengthy forms, visits to the lender, and numerous financial documents for underwriting. A digital loan origination system simplifies the process and makes attaining credit more accessible, as well as provides a best-in-class user experience.  

3. Best-in-class service 

Digital loan origination systems are designed to optimize the whole journey for the borrower. While LOS can automate the whole end-to-end mortgage lending process, the aim is to free lenders to do more rather than make them obsolete.  

In other words, giving mortgage lenders best-in-class technology allows them to provide best-in-class service. How? By reducing the time they spend on the more tedious tasks such as tracking down financial statements and correcting borrower forms. This frees up lenders to focus on providing borrowers with better customer service. 

What are the stages of the loan origination process? 

When you first try to get a mortgage, the loan officer or lender originates the loan and the application. To finish the application, you must provide details about your financial situation, which usually includes your income, debt, and assets. The lender will then verify your financial information and determine whether to approve you for the home loan and how much you can borrow, as well as the interest rate.  

There are essentially four stages of the loan origination process, which includes: 

1. Preapproval 
2. Loan application 
3. Loan processing and underwriting 
4. Closing 

Let’s take a deeper dive into each so that you will be ready: 

1. Preapproval  

The first step in the loan origination process, if you are eligible for a mortgage, is to get preapproval from a lender. Keep in mind, however, that a preapproval does not mean you will ultimately be approved for a mortgage; instead, it indicates what you are likely to receive if you meet all of the underwriting requirements and your financial situation remains unchanged between preapproval and closing. 

At this point, you must provide specific financial documentation to your lender and undergo a credit check, which enables the lender to determine if you are creditworthy. Documents that you must provide in the preapproval stage include: 

• Recent pay stubs 
• Income tax returns (from previous two years) and W-2s, or, if you are self-employed, profit and loss statements 
• Recent bank account statements 
• Investment information 
• Your passport or driver’s license 

2. Loan application 

In addition to preapproval, you must complete an application for the specific type of home loan you want. This requires a thorough vetting of your financial circumstances and the property you are purchasing, which includes: 

• Debts, such as credit cards and student loans 
• Income and work history 
• Assets like stocks, bank accounts, and retirement funds 
• The down payment you expect to pay and where the funds are coming from (like savings, inheritance, or a gift) 
• The kind of home you are buying 

After you have submitted the loan application, you will get a loan estimate, which is a document that details all the estimated costs of the loan you applied for. To allow borrowers to compare offers, lenders quote these costs upfront. Most of the time, you will get the loan estimate within three days of applying or, in certain cases, at the time of application. 

3. Loan processing and underwriting 

During this step in the process, lenders and underwriters assess your financial information (which is occasionally called your risk profile) to determine how much of a mortgage you can take on financially and repay on time. 

To arrive at a decision about loaning you a mortgage, the lender will evaluate your information through a software program, manually, or both. At this point, the lender can deny or approve the loan, or potentially request further information. The latter request is not uncommon, so don’t fret.  

4. Closing 

After your application has been approved and underwriting is finished, you will receive a final commitment letter for the home loan. The last step is closing. During this step, you sign paperwork saying you agree to the terms of the loan and the transfer of the property. Perhaps most satisfyingly, you also get the keys to your new home.  

However, you will also be responsible for paying closing costs, including the origination fee, if your lender charges one. Other fees may include an underwriting fee or documentation preparation fee, as well as attorney and title insurance fees.  

Ultimately, mortgage loan origination software can help save you time and money, since it simplifies the entire mortgage process from origination to closing. Before committing yourself to getting mortgage loan origination software, do your research into the systems available, and how the best mortgage lenders in your area fit into the equation.  

Have experience with mortgage loan origination software? Let us know about your experiences in the comment section below.