Manual Underwriting Guidelines On FHA Loans And VA Loans
This Article Is About Manual Underwriting Guidelines On FHA Loans And VA Loans:
Both VA Loans and FHA Loans can be manually underwritten when borrowers cannot get an approve/eligible per Automated Underwriting System. One of the key factors that are very important on VA and FHA Manual Underwriting is that borrowers cannot have any late payments in the past 12 months. Also, verification of rent is required on all manual underwrites.
Gustan Cho Associates will exempt verification of rent for borrowers who are living rent-free with family due to saving money for their down payment and closing costs of the home purchase. Gustan Cho Associates will provide a living with family rent-free form that needs to be completed, dated, and signed by all parties. All FHA Loans and VA Loans During and After Chapter 13 Bankruptcy are manual underwrites. There are no waiting period requirements after the Chapter 13 Bankruptcy discharged date to qualify for FHA and/or VA loans.
If the discharged date of the Chapter 13 Bankruptcy has not been seasoned for two years, the FHA and/or VA loan needs to be manually underwritten.
Automated Underwriting Versus Manual Underwriting
The Automated Underwriting System is a sophisticated automated approval system that the majority of lenders use for the initial mortgage loan qualification for borrowers:
- DU is Fannie Mae’s version of automated findings
- 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.
The Automated Underwriting System is like a human brain.
The AUS analyzes the following information within a matter of seconds:
- Borrower’s income
- Credit history
- Job history
- Front end debt to income ratios
- Back end debt to income ratio
- Prior bankruptcies
- Tax liens
- Public records
- Current as well as past late payments and derogatory accounts
Within minutes of inputting the mortgage loan borrower’s information, the Automated Underwriting System yields a decision of the following:
- Refer With Caution
What Are Key Manual Underwriting Guidelines
The decision everyone expects is approve/eligible. Mortgage Applications that get a referred/eligible means that the borrower is eligible 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 the 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
Not too many lenders do manual underwriting nor follow manual underwriting guidelines:
- Borrowers get denied by either Fannie Mae’s or Freddie Mac’s Automated Underwriting System, do not give up
- There are 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 a mortgage application as a manually underwriting file, the mortgage loan originator will know whether the file will get approved or not.
Manual Underwriting: Process And Requirements
For mortgage applicants who get referred/eligible per automated findings, manual underwriting will be the only option to get a mortgage loan approval. Manual Underwriting 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 to a mortgage loan approval.
Compensating Factors With Manual Underwriting Guidelines
Compensating factors are taken into considerations by mortgage underwriters on manual underwrites:
- High credit scores are key and a great compensating factor
- Bigger down payments than the 3.5% down payment required is a strong compensating factor
- The more money a home buyer puts down on the home purchase, the less risk the mortgage lender has
- Having at least 3 months reserves of principal, interest, taxes, and insurance is a huge compensating factor
- Lower debt to income ratios are a major plus and reduces the 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 canceled checks unless they are renting a home from a registered property management company
Renters can get a letter from the property management manager stating that have been timely with paying rent for the past 12 months.
Manual Underwriting Mortgage Lenders
A substantial percentage of our business at Gustan Cho Associates Mortgage Group are manual underwrites. Home Buyers needing to qualify for FHA and/or VA Loans via manual underwriting with a direct lender with no lender overlays on government and/or conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.