There are many moving parts when it comes to applying for a loan. Each loan application consists of several stages, such as gathering required information and documents and assessing the applicant’s information for approval. Because of the many steps involved, there are loan professionals who help you with each stage. For example, loan processors administrate loan paperwork while loan underwriters assess how much risk lenders take when giving a loan. Here’s a breakdown of what each professional does and the role they play in the loan approval process.
If you need help navigating the world of loans, consider working with a financial advisor.
What Is a Loan Processor?
When applying for a loan, there is a lot of paperwork and documentation requirements. To streamline the process, a loan processor organizes and manages all information and documentation. Essentially, they gather all of the required materials (pay stubs, credit report, W-2s and bank statements) to verify the information on the application is correct.
Then, the loan processor gives the documentation to the underwriter, who analyzes the risk of loaning funds to the applicant. All information is organized in such a way to make it easier for the loan underwriter to approve or deny the loan.
Keep in mind, loan processors do not have a license, therefore, cannot give advice about suitable financing options. Loan processors simply do the backend work while the loan originator or officer manages the application from start to finish.
What Does a Loan Processor Do?
The primary role of a loan processor is to streamline the loan application process. So, no matter if you’re applying for a mortgage or auto loan, the loan processor can help you get your ducks in order, so to speak. To help you do so, here are some of the main responsibilities of a loan processor.
- Loan processors gather your financial documentation. The most important part of their job is making sure all financial documents are collected and in order. This also includes checking the applicant has presented required and correct documentation, including all of the accurate, essential information for the underwriter. These documents include W-2s, proof of insurance, tax returns, salary income, bank statements and proof of assets and debts.
- Once everything is gathered, they review your credit report. A loan processor requests and reviews your credit report to check for late payments, collections and any inaccuracies. Once this is complete, they may ask for letters of explanation from you to understand your credit history. A good credit score increases your approval chances. The loan processor reviews your report to view your past ability to pay bills and make sure you can pay your mortgage.
- They track certain mortgage application deadlines for you. This helps make sure you close on your home in a timely fashion and avoid any excess fees. Finding your potential home, placing an offer, getting it appraised, then finishing the underwriting and final loan for your mortgage all must be completed in this timeline.
- They finalize the application process by working directly with the underwriter. It is their responsibility to pass on all of the accurately gathered loan documents to the underwriter for their finalized approval.
What Is a Loan Underwriter?
Loan underwriters work for lenders and help them evaluate and assess the risk of a loan applicant. So, when you apply for a mortgage or auto loan, an underwriter will determine if you qualify for financing. The goal is to establish if a loan is safe for all parties involved: you as the borrower and the lender.
Loan underwriters review information such as your income, credit score, debt-income ratio and other assets. When applying for a mortgage, underwriters will also look at the value and type of the property to make sure the loan is fair for the lender and borrower.
Keep in mind, many financial institutions may use a combination of loan underwriter and underwriting software to assess the risk of giving money to a borrower.
What Does an Underwriter Do?
After the loan processors pass all the documentation to the underwriter, the loan underwriter will approve or deny your loan. To determine if your loan is approved, the underwriter will assess several factors, like your credit history and income, to see if you’re eligible for approval. Usually, underwriters focus on three areas to determine approval, including:
- They check and assess your credit history. Your credit history is one of the most important factors when determining loan approval. The underwriter’s job is to analyze your credit history and see how you did with making payments on time. They will also look at your payment history on student loans, car loans and many other credit types. Underwriters look for aspects that help them decide if you can pay back what you borrow.
- They review your financial capacity. While deciding if you can pay off your mortgage, the underwriter will look over your income, employment history, assets and debt. Underwriters will also review your checking and savings accounts, IRA and 401(k) accounts, other income records, tax returns and your DTI (debt-to-income ratio). They want to ensure that you (and any co-signers) have the means and resources to make payments now and for the life of the loan.
- They ensure your collateral is sufficient. Underwriters use the home’s current market value to ensure it can be adequate loan collateral. This reassures your lender that they have something to collect the unpaid balance if you default on your loan. They may do this by getting an appraisal or other validation of your home’s value.
Keep in mind, if a loan underwriter denies your application for a mortgage, you have a right to appeal. However, the appeals process can be long and require a substantial amount of supporting documentation to prove your case.
Loan Processor vs. Underwriter
Both the loan processor and loan underwriter play a crucial role in the approval of your loan. A loan processor collects, manages and organizes all of the paperwork. They also verify all information is accurate before presenting it to the underwriter. Once they have verified all information and organized it according to the type of financing requested, they will pass it on to the loan underwriter.
The loan underwriter will then take a deep dive into the applicant’s finances and assets to assess if they are eligible for financing. Essentially, the loan underwriter has the decision-making power to approve or deny your loan. Usually, you work with a broker, officer or originator who outlines to underwriting criteria in advance. Before the loan underwriter evaluates your situation, your broker will usually provide insight on the probability of approval since they are usually knowledgeable about underwriting requirements. But, overall, the loan underwriter will have the final say on approval.
The Bottom Line
Loan processors and loan underwriters are key players in loan approval. While the loan processors get all your documents in order, the loan underwriter assesses the risk of lending you money for a home, car or debt consolidation. Understanding the role of each can help you know what to expect when applying for financing. After all, the better prepared you are, the more straightforward the process will be.
- A financial advisor can help answer any questions you have regarding a mortgage. It doesn’t have to be difficult to find a qualified financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Curious about your mortgage payment? Use SmartAsset’s free mortgage calculator to calculate your possible monthly payment based on your interest rate, down payment and total home cost.
- Before you start house shopping, you should know your exact price range. Sometimes, this is difficult to figure out. See how much house you can afford with Smart Asset’s free tool.
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