Automated Underwriting System

The Automated Underwriting System is a sophisticated automated approval system that the majority of mortgage lenders use for the initial mortgage loan qualification for residential mortgage loan borrowers.  DU is the Fannie Mae’s version of automated findings and LP is Freddie Mac’s version of automated findings.  Most mortgage lenders favor the Fannie Mae version and not all mortgage lenders will go with LP Findings.

Automated Approval

The Automated Underwriting System is like a human brain where it analyzes the borrower’s income, assets, credit, credit history, job, job history, debts, liabilities, front end debt to income ratios,prior bankruptcies, judgments, tax liens, public records,  reserves, and current as well as past late payments and derogatory accounts.  Within minutes of inputing the mortgage loan borrower’s information, the Automated Underwriting System yields a decision of approve/eligible, referred/eligible, or referred ineligible.

Manual Underwriting

The decision everyone expects is approve/eligible.  If you get a referred/eligible, it means that the borrower is eligble for a mortgage loan but the AUS cannot render a decision.  The file needs to go to manual underwriting which means it needs to be reviewed by an underwriter manually and it is up to the underwriter to render a decision based on the credit risks.  Referred/ineligible means that the mortgage loan borrower does not qualify for a mortgage loan.  These reasons can be waiting periods not being satisfied, too many late payments, or the borrower not meeting one or more mortgage lending guidelines.

Denied By Automated Underwriting System: Manual Underwriting

Not too many mortgage lenders do manual underwriting.  If you get denied by either Fannie Mae’s or Freddie Mac’s Automated Underwriting System, do not give up.  There are mortgage lenders, like myself, that do many manual underwriting mortgage loans.  Manual Underwriting does require more time and your mortgage application is more scrutinized.  Manual underwriting mortgage loan’s mortgage rates are slightly higher due to the risk factor.  Before a mortgage loan originator submits your mortgage application as a manually underwriting file, your mortgage loan originator will know whether your file will get approved or not.

Manual Underwriting: Process And Requirements


If you get a referred/eligible per automated findings, manual underwriting will be your only option to get a mortgage loan approval.  Manual underwriting mortgage lending guidelines require a 31% front end ratio debt to income ratio and 43% back end debt to income ratio.  The manual underwriting underwriter can exceed the front and back end debt to income ratios as high as 40% front end debt to income ratios and 50% back end debt to income ratios.  What is key to get a mortgage loan approval with a manual underwriting approval is compensating factors.  Compensating factors are the advantages that the borrower has to offset the risk factor in the underwriter’s decision in approving the borrower’s mortgage loan.  Reducing risk is the key in your mortgage loan approval.  High credit scores is key and a great compensating factor.  Bigger down payments than the 3.5% down payment required is a strong compensating factor.  The more money you put down on your home purchase, the less risk the mortgage lender has.  Having at least 3 months reserves of your principal, interest, taxes, and insurance is a huge compensating factor.  Lower debt to income ratios are a major plus and reduces risk for the mortgage lender.  Rental verification if a strong compensating factor.  The only way to verify rental verification is to provide the mortgage lender 12 months cancelled checks unless you are renting your home from a registered property management company.  If you are, you can get a letter from the property management manager stating that you have been timely with paying your rent for the past 12 months.

Manual Underwriting Mortgage Lenders

As mentioned earlier, not too many mortgage lenders do manual underwriting.  If you are a mortgage loan borrower in Illinois, Florida, Wisconsin, California, or Indiana and need a manual underwriting mortgage lender, contact me at 262-716-8151 or at .

Gustan Cho

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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