This Article Is About No Lender Overlays With Automated Underwriting System Approval
Every mortgage loan application is submitted for automated approval via the Desktop Underwriter’s Automated Underwriting System.
- The Automated Underwriting System is a computer system that will analyze the information stated on the mortgage application
- AUS will analyze the mortgage loan applicants credit report and credit score
- The Automated Underwriting System will take income, debt, assets, liabilities, monthly payments, credit, credit history, credit tradelines, prior derogatory credit including bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale
- Judgments and tax liens will be taken into account as well
- Within minutes of submitting a mortgage package for DU Automated Underwriting System Approval, the Desktop Underwriter will render a decision as to whether the file has been approved or denied
Findings From the Automated Underwriting System Approval
The Automated Underwriting System Approval will issue an automated approval with findings.
- The Automated Underwriting System Approval will state what the conditions will be
- For example, the Automated Underwriting System Approval Findings will decide whether collections need to be paid off or whether rental verification is needed as well as other conditions the computer system decides
How Automated Underwriting System Analyzes Findings
The Automated Underwriting System will recognize from the credit report whether the borrower has passed the required waiting period after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale.
- The Automated Underwriting System will also decide whether the mortgage loan borrower will need to provide rental verification or not
- Rental verification can only be proven by canceled checks for the prior twelve months or by a letter from a registered property management company
- Cash monthly rental payments and private rental receipts cannot be used for rental verification
- If a borrower has credit scores of over 620, the chances are that they would not need rental verification
Credit scores under 620 will most likely require rental verification.
Debt To Income Ratios
The Automated Underwriting System Approval will also decide what the maximum debt to income ratio a borrower will be capped at.
- For borrowers with Credit Scores of 620 or higher, the debt to income ratios might be capped at 56.9%
- For those with Credit Scores under 620 FICO, the chances are that the Automated Underwriting System will cap the debt to income ratio at a much lower level such as 43%
Manual Underwriting
Back to Work Extenuating Circumstances FHA mortgage loans cannot be detected by DU Automated Underwriting System.
- It will get denied
- On Back to Work Extenuating Circumstances, underwriting needs to be manual underwrites
- Lenders that do not do a manual underwrite cannot approve Back to Work Extenuating Circumstances FHA Loans
- Back to Work Extenuating FHA mortgage loans is an extenuating circumstance FHA loan program that has been discontinued
- The waiting period gets shortened to a one-year waiting period after someone has a foreclosure, deed in lieu of foreclosure, short sale, or bankruptcy
Strict guidelines apply and the borrower needs to prove that he or she has had been unemployed for at least six months prior to the bankruptcy or foreclosure:
- And/or had a reduction of at least 20% of total household income for a least six months prior to the bankruptcy and/or foreclosure
Candidates for the Back to Work Extenuating Circumstances FHA mortgage loan program need to complete a one-hour HUD-approved housing counseling program:
- They also need to prove that they are on their feet and have been paying their monthly credit obligations on time for the past 12 months
UPDATE On FHA Back To Work Mortgage Program
The above article on FHA Back To Work Mortgage Program will remain for archival purposes. HUD has discontinued the FHA Back To Work Due To Extenuating Circumstances. The program turned out to be a complete failure and not too many lenders were successful with the FHA Back To Work Mortgage Loan Program.
Does Getting A DU Automated Approval Guarantee Mortgage Loan?
Many lenders will not even look at a mortgage loan application without a DU Automated Approval by the Automated Underwriting System.
- A DU Automated Approval does not guarantee a mortgage loan approval by mortgage lenders with overlays
- A large percentage of mortgage lenders have their own internal mortgage overlays
- For example, just because a mortgage loan borrower got an automated approval with a credit score of 580 does not mean that the mortgage lender will accept that borrower
That particular lender might have their own internal mortgage underwriting overlays where they will not accept a mortgage loan applicant with a minimum of a 640 FICO score.
Lender Overlays Versus Automated Underwriting System Approval
The great news is that we are mortgage bankers with ZERO OVERLAYS.
- We will go strictly off the DU Findings from the Automated Underwriting System
- As long as you get an automated approval by Fannie Mae’s Automated Underwriting System, the mortgage loan application will get approved
- This holds true as long as the mortgage underwriter can verify your income, debts, liabilities, and assets
If you got denied a mortgage loan after you had an automated approval by a mortgage lender, please contact me at Gustan Cho Associates 262-716-8151 or text for a faster response. Or email us at gcho@gustancho.com or you can always visit us anytime at www.gustancho.com. A large portion of my business is closing on mortgage loans that have been denied at other mortgage companies. I can close most mortgage loans in 3 weeks or less and have 24 mortgage loan approvals from the date I get the borrower’s signed mortgage application and required documents such as tax returns, paycheck stubs, 2 months bank statements, and other documents.
Related> Automated Underwriting System
Related> Difference Between Manual and Automated Underwriting
