AUS Approval On Conventional Loans Versus Refer-Eligible Per AUS

Gustan Cho Associates
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This BLOG On AUS Approval On Conventional Loans Versus Refer-Eligible Per AUS Was PUBLISHED On May 23rd, 2019

AUS Approval On Conventional Loans is required in order for a lender to proceed to process and underwrite conventional loans.

In this blog, we will discuss AUS Approval On Conventional Loans and options for borrowers who get a refer/eligible per AUS.

AUS Approval On Conventional Loans
Gustan Cho Associates

Automated Underwriting System 

All lenders are required to run the Automated Underwriting System on all government and conventional loans. There are two types of the Automated Underwriting System:

  • Fannie Mae’s Desktop Underwriter (DU AUS)
  • Freddie Mac’s Loan Prospector (LP AUS)

The Automated Underwriting System (AUS) is a sophisticated computer system that analyzes the borrowers’ credit and income profile in a matter of seconds. It renders one of three decisions:

  1. Approve/Eligible: This means that the borrower has an automated approval
  2. Refer/Eligible: This means the borrower may or may not be eligible and needs a human mortgage underwriter to manually underwrite the file
  3. Refer with caution: This means the borrower does not meet the guidelines and is an automated mortgage denial

FHA and VA Loans allow refer/eligible manual underwriting. However, conventional loans do not allow manual underwriting. We will discuss the options conventional mortgage borrowers with a refer/eligible per AUS has in proceeding with their conventional mortgage process.

Solutions On Refer/Eligible AUS Findings On Conventional Loans

There are several solutions for borrowers who cannot get an approve/eligible per AUS on conventional loans.

  • First, find out the reason why the AUS is rendering a refer/eligible versus approve/eligible
  • Is it higher debt to income ratios?
  • Is it because of adding non-occupant co-borrowers?
  • Is it due to gift funds?
  • Is it due to recent late payments in the past 12 months?
  • Is it due to no or very little reserves?
  • Is it due to late payments after a bankruptcy and/or foreclosure?
  • Is it due to maxed out credit card balances?
  • Is it due to multiple jobs in the past 24 months?
  • The loan officer can try to switch from Fannie Mae to Freddie Mac’s AUS or vice versa
  • The loan officer should try adding a larger down payment and see if that does the trick
Gustan Cho Associates
Gustan Cho Associates

Late Payments After Bankruptcy And Housing Event

There are times where Fannie Mae will issue a refer/eligible and Freddie Mac will issue an approve/eligible.

  • The loan officer can play around with the automated underwriting system to see if they can get an approve/eligible per AUS
  • They can enter more reserves, take out the non-occupant co-borrowers, take out the gift funds, adding more down payment
  • Non-occupant co-borrowers, gift funds, high credit card balances, lower credit scores, recent late payments, and higher debt to income ratios are not viewed favorably by the automated underwriting system
  • Late payments after bankruptcy and/or foreclosure is viewed very negatively by the automated underwriting system
  • Lenders consider borrowers with late payments after bankruptcy, foreclosure, deed in lieu of foreclosure, short-sale as second offenders

Many lenders will deny and/or disqualify borrowers with late payments after bankruptcy and/or housing event for a mortgage even with AUS Approval as part of their overlays.

Switching To Other Loan Programs

Just because borrowers cannot get AUS Approval on conventional loans does not mean they cannot get an AUS Approval with other loan programs. Borrowers who cannot get an AUS Approval on Conventional Loans can see if they can switch to FHA Loans. Or they may consider non-qm loans. For more information on this topic or need help in qualifying for a mortgage with a direct lender with no overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays.

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