Fannie Mae Automated Underwriting System Approval

This BLOG On Fannie Mae Automated Underwriting System Approval Was UPDATED On November 15th, 2017

Mortgage Borrowers normally need an automated approval by the Automated Underwriting System also referred to 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. On this BLOG, we will discuss the Fannie Mae Automated Underwriting Approval System.

How Fannie Mae Automated Underwriting System Approval System Works

Home Buyers 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:

  • Mortgage 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 mortgage lenders have mortgage lender overlays which are mortgage requirements that is above and beyond those of the Fannie Mae Automated Underwriting System Approval
  • The Gustan Cho Team at USA Mortgage has no lender overlays so we only go by Automated Underwriting System Approval

Mortgage Borrowers will need a pre-approval from a mortgage lender to start shopping for a home and enter into a real estate purchase contract:

  • Mortgage loan officer will take the official mortgage loan application also called the 1003
  • Loan Officer will require to see borrower’s income, assets, and liabilities
  • Mortgage lender will then run a credit check to review borrower’s credit scores, credit history, and overall profile of borrowers
  • There are two ratios that mortgage lender will need to see and see whether borrowers qualify for a mortgage loan program
  • The first ratio is called the front end ratio or the housing ratios
  • The front end ratio is the total monthly housing expenses
  • Front DTI is the borrowers 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 and if borrower has less than 20% down payment
  • Monthly mortgage insurance premium if it is a FHA insured mortgage loan
  • Property taxes divided by 12
  • Homeowners insurance premium divided by 12. 
  • If home is located in a community where there is homeowner association dues, that will be calculated as part of monthly housing expenses
  • The front end ratios is calculated by dividing all of monthly housing expenses by total monthly gross income. 
  • The maximum front end housing ratio that Fannie Mae Automated Underwriting System will allow for a FHA insured mortgage loan is 46.9%. to get automated approval
  • The back end ratios is calculated by dividing the total expenses including the housing ratios as well as automobile payment, student loans, minimum credit card payments by your gross month income
  • The total back end ratios allowed for a Fannie Mae Automated Underwriting System mortgage loan approval for a FHA insured mortgage loan is 56.9% to get approve/eligible

Automated Underwriting System Findings On VA Loans

Why do lenders have different requirements on  VA Loans?

  • Some Lenders require a 640 credit scores on VA Loans
  • Other Lenders will require a 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 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 mortgage lending guidelines?
  • The reason is due to VA Lender Overlays. VA requirements is 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

The Gustan Cho Team at USA Mortgage has NO OVERLAYS ON VA LOANS.

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
  • The AUS will determine how many years tax returns is required
  • AUS will also determine whether the mortgage loan borrower needs verification of rent
  • The AUS will also take into account gift funds for down payment 
  • AUS may even reject a mortgage loan 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, mortgage lenders with no lender overlays like The Gustan Cho Team at USA Mortgage will just go off Fannie Mae Automated Underwriting System approval as long as the borrower can meet the conditions stated on AUS
  • With lenders with no mortgage overlays,  formal mortgage approval and a clear to close will be issued if borrowers meet the conditions on the AUS Approval

Mortgage Borrowers who are interested in applying for a mortgage loan with a lender with no lender overlays, please contact Gustan Cho at 262-716-8151 or email us at gcho@usa-mortgage.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.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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