This Article Is About Fannie Mae Automated Underwriting System Approval
Borrowers normally need an automated approval by the Automated Underwriting System also referred to as AUS in order to proceed with their mortgage loan process. There are two types of Automated Underwriting Systems:
- Fannie Mae
- Freddie Mac
Fannie Automated Underwriting System Approval is called Desktop Underwriter or DU. Freddie Mac Automated Underwriting System Approval is called Loan Prospector or LP. Both AUS Systems are similar but Fannie Mae’s AUS is much more common and not every mortgage company uses Loan Prospector
How Fannie Mae Automated Underwriting System Approval System Works
For homebuyers who are interested in purchasing a new home, the first step will be to consult a loan officer to see if they qualify for a home mortgage loan. There are several steps mortgage borrowers need to go through to get qualified and pre-approved. Every mortgage lender has different mortgage requirements.
There are two stages of the mortgage process by lenders:
- Loan Applicants first need to meet the minimum mortgage guidelines of the loan program they apply for and get an approve/eligible per Automated Underwriting System
- Second, most lenders have overlays which are lending requirements that are above and beyond those of the Fannie Mae Automated Underwriting System Approval
- Gustan Cho Associates Mortgage Group has no lender overlays
So we only go by Automated Underwriting System Approval.
Home Shopping And Mortgage Process
Borrowers will need a pre-approval from the lender to start shopping for a home and enter into a real estate purchase contract:
- The loan officer will take the official mortgage loan application also called 1003
- Loan Officer will require to see the borrower’s income, assets, and liabilities
- The lender will then run a credit check to review borrower’s credit scores, credit history, and overall profile of borrowers
There are two ratios the loan officer will need to see.
Importance Of Debt To Income Ratio
The loan officer will see whether borrowers qualify for a home loan program. The first ratio is called the front-end ratio or the housing ratio. The front-end ratio is the total monthly housing expenses. Front DTI is the borrower’s principal and interest of mortgage payment. Mortgage insurance is part of the housing expenses. Annual insurance premium divided by 12. Private mortgage insurance premium if it is a conventional loan. If a borrower has less than a 20% down payment PMI is mandatory. Monthly mortgage insurance premium on FHA Loans. Property taxes divided by 12. Homeowners insurance premium divided by 12. If the home is located in a community where there are homeowner association dues, that will be calculated as part of monthly housing expenses. The front-end ratios are calculated by dividing all of the monthly housing expenses by total monthly gross income. The maximum front-end housing ratio that Fannie Mae Automated Underwriting System will allow for an FHA-insured mortgage loan is 46.9%. to get an automated approval.
How Are Debt To Income Ratios Calculated
The back end ratios are calculated as follows:
- by dividing the total expenses including the housing ratios as well as an automobile payment
- student loans
- minimum credit card payments
- The above are added and divided by borrowers gross monthly income
The total back-end ratios allowed for a Fannie Mae Automated Underwriting System loan approval for an FHA Loan is 46.9% front end and 56.9% back end to get approve/eligible.
Automated Underwriting System Findings On VA Loans
Why do lenders have different requirements on VA Loans? Some Lenders require 640 credit scores on VA Loans. Other Lenders will require 620 credit scores. Still, other lenders will go down to a 580 credit score on VA Loans. Some Lenders cap Debt To Income Ratios to 41% on VA Loans. Other Lenders debt to income ratio caps is set at 50%.
The VA Has No Minimum Credit Score Requirements And No Maximum DTI Cap With An Automated Approval
The answer to the above question is that the Department Of Veteran Affairs (VA) does not have any minimum credit score requirements on VA Loans. VA does not have any debt to income ratio requirements on VA Loans. So why is it that all of these Veteran-Friendly Mortgage Lenders have all of these high lending guidelines? The reason is due to VA Lender Overlays. VA requirements are that as long as they get an approve/eligible per Automated Underwriting System Findings, the Department Of Veteran Affairs will guarantee the VA Loan. However, VA Lenders can have higher VA lending requirements of their own which are called VA Lender Overlays. Gustan Cho Associates has NO OVERLAYS ON VA LOANS.
Fannie Mae Automated Underwriting System Approval: Approve/ Eligible Per DU Findings
Getting a Fannie Mae Automated Underwriting System approval is key. Fannie Mae Automated Underwriting System is like a super brain that will take everything about a mortgage loan borrower into account. The Fannie Mae Automated Underwriting System will take the FOLLOWING into account and render a decision in a matter of seconds:
- Income
- Assets
- Liabilities
- Credit scores
- Credit report
- Credit history
- Derogatory credit
- Employment history
- Other aspects of the mortgage loan borrowers information into account
AUS will either issue an approve/eligible, refer/eligible. or refer/ineligible.
Fannie Mae Automated Underwriting System Approval With Conditions
The AUS will determine how many years of tax returns is required:
- AUS will also determine whether the borrower needs verification of rent
- The AUS will also take into account gift funds for the down payment
AUS may even reject a borrower with good credit and good income but has limited assets.
If I get A Fannie Mae Automated Underwriting System Approval, Am I Assured A Mortgage Loan Approval?
Many mortgage lenders have their own internal overlays. Overlays are additional requirements on top of the Fannie Mae Automated Underwriting System approval. However, lenders with no overlays like Gustan Cho Associates will just go off Fannie Mae Automated Underwriting System approval. This holds true as long as the borrower can meet the conditions stated on AUS. With lenders with no overlays, formal mortgage approval and a clear to close will be issued if borrowers meet the conditions on the AUS Approval.
Borrowers who are interested in applying for a mortgage loan with a lender with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text for a faster response. Or email us at alex@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays. We are direct lenders with no lender overlays on government and conventional loans and just go off Automated Underwriting System (AUS) Findings.
