Loan Origination, Products, and Underwriting
The origination workflow
Origination moves from inquiry to application to processing to underwriting to closing. A complete application under Regulation Z includes six pieces of information: borrower name, income, Social Security number, property address, estimated value, and loan amount. Only when all six are present does the three-business-day Loan Estimate clock start.
Products to distinguish
- Conventional: Not government-insured; conforming loans meet agency limits.
- FHA: Government-insured, lower down payment, mortgage insurance premiums, and property standards.
- VA: Guaranteed for eligible veterans, often no down payment, with a funding fee.
- USDA: Rural eligibility, income limits, guarantee fee.
Underwriting fundamentals
Underwriting weighs the four Cs: credit, capacity, capital, and collateral. Key ratios are the front-end (housing) ratio and back-end (total debt) ratio, computed against gross monthly income. Automated underwriting findings drive documentation requirements, but the underwriter must validate the data. Appraisal independence rules prohibit the originator from influencing or selecting the appraiser improperly.
Traps
Candidates confuse pre-qualification with pre-approval-only the latter involves verified documentation. Another trap: a loan with a low front-end ratio can still fail on the back end because of consumer debt. Also, government program eligibility (VA service, USDA location) is a threshold question that no amount of compensating factors can cure.
Rule of thumb
Compute the back-end ratio as (proposed housing payment + all recurring monthly debt) ÷ gross monthly income. If it exceeds the program limit, look for documented compensating factors-never assume an exception exists.
Worked example
Gross monthly income $5,000; proposed PITI $1,400; car payment $350; student loan $150. Back-end ratio = ($1,400 + $500) ÷ $5,000 = 38%. The front-end ratio is 28%.