This Article Is About Manual Underwriting With Late Payments Mortgage Guidelines
In general, you need to have timely payments in the past 24 months to qualify for manual underwriting on FHA and/or VA loans. However, Gustan Cho Associates can make exceptions with one or two late payments in the past 24 months if the borrower has extenuating circumstances beyond their control. This is more so on VA loans versus FHA loans. The extenuating circumstances need to be documented such as hospital and medical records. In this article, we will discuss and cover manual underwriting with late payments in the past 24 months on FHA and/or VA loans.
Mortgage Programs That Allow Manual Underwriting
FHA and VA Loans allow manual underwriting.
Borrowers who cannot get an approve/eligible per automated underwriting system (AUS) can qualify for manual underwrites. Borrowers need a refer/eligible per AUS in order to be able to qualify for FHA and/or VA manual underwriting. Not too many lenders will do Manual Underwriting With Late Payments. With manual underwriting, borrowers need perfect timely payments in the past 24 months. Gustan Cho Associates can do Manual Underwriting With Late Payments in past 24 months as long as borrowers have extenuating circumstances. We will discuss FHA and VA Manual Underwriting With Late Payments Mortgage Guidelines on this blog.
FHA And VA Manual Underwriting Guidelines
FHA and VA Manual Underwriting Guidelines are very similar.
When the automated underwriting system renders a refer/eligible per AUS, FHA, and/or VA Loans can be downgraded to manual underwriting. Not all lenders do manual underwriting. Gustan Cho Associates are one of the few national lenders with no overlays and experts in VA and FHA Manual Underwriting. Manual Underwrites is no different than the automated underwriting system approved files. However, a mortgage underwriter will manually underwrite the file with a fine tooth comb. Underwriters will make sure borrowers meet all mortgage guidelines required by HUD and/or VA. Manual Underwriting With Late Payments is not allowed by most lenders. Majority of lenders do not want any late payments in the past 24 months. Also, no late payments after bankruptcy, foreclosure, deed in lieu of foreclosure, and short-sale. The great news is Gustan Cho Associates will allow Manual Underwriting With Late Payments if it is just one or two late payments in the past 24 months. Borrowers will need proof they had extenuating circumstances.
Automated Underwriting System
The automated underwriting system (AUS) is an intricate sophisticated system residential mortgage lenders use on all loan applications. Loan officers will enter borrower’s data, credit and income profile to the automated underwriting system. The automated underwriting system will render the following decision:
- Approve/Eligible
- Refer/Eligible
- Refer/Caution
Approve/Eligible means borrowers got an automated approval. Refer/eligible means that AUS cannot make a determination and needs to be downgraded to manual underwriting where a human underwriter needs to underwrite the file. Refer with caution means a denial.
Types Of Automated Underwriting Systems
There are two types of automated underwriting systems.
- Fannie Mae’s Desktop Underwriter (DU) or Desktop Originator (DO) is more commonly used by lenders
- The second AUS used is Freddie Mac’s Loan Prospector (LP)
- There are times where borrowers may not get a Fannie Mae AUS approval but may get a Freddie Mac AUS Approval
- Not all lenders are Freddie Mac Approved
Gustan Cho Associates are both Fannie Mae and Freddie Mac-approved lenders.
General FHA And VA Manual Underwriting Guidelines
FHA and VA Manual Underwriting Guidelines are very similar:
- VA does not have a maximum DTI cap on automated approvals
- The maximum debt-to-income ratios on VA Loans is 41% DTI is on manual underwrites with no compensating factors
- Debt to income ratios can go as high as 55% on VA manual underwrites with 2 or more compensating factors
- HUD allows 31/41 DTI with no compensating factors
- 37/47 with one compensating factors
- 40/50 DTI with two compensating factors
- Timely payments in the past 24 months
Manual Underwriting With Late Payments: Importance Of Low Payment Shock
In general, verification of rent required on all manual underwrites. Gustan Cho Associates will exempt rental verification if the borrower is living rent-free with a family member. The rent-free letter will be provided by Gustan Cho Associates that needs to be completed by a family member where the borrower is living rent-free. Timely payments in the past 24 months with no late payments. One month’s reserves for one and two-unit properties three and four-unit properties require three months’ reserves. Reserves are one months of principal, interest, taxes, principal (PITI). Reserves cannot be gifted. Needs to be borrowers’ own funds. Compensating factors is important for borrowers with late payments in the past 24 months or those with high debt to income ratio.
Manual Underwriting With Late Payments: Importance Of Compensating Factors
Compensating factors play an important role for borrowers with late payments in the past 24 months and those with high debt to income ratio.
The following factors are considered compensating factors by mortgage underwriters:
- Larger down payment
- Three or more months of reserves
- Part-time income or other income that has been seasoned for 12 months or more but not used to qualify income
- History of job promotions and/or the borrower getting more training and/or education to further their career
- History of saving money and lower credit utilization ratio on revolving accounts
- Working spouse who is not on the loan
- Job longevity on the same job and/or same field of employment
Manual Underwriting With Late Payments: FHA And VA Guidelines After Bankruptcy And/Or Housing Event
Homebuyers can qualify for FHA and/or VA Loans after bankruptcy, foreclosure, deed in lieu of foreclosure, short-sale. There is a mandatory waiting period to qualify:
- HUD requires a two-year waiting period after Chapter 7 Bankruptcy to qualify for FHA Loans
- HUD mandates a three year waiting period after foreclosure, deed in lieu, short-sale to qualify for FHA Loans
- VA requires a two-year waiting period after Chapter 7 Bankruptcy, foreclosure, deed in lieu of foreclosure, short-sale to qualify for VA Loans
- Homebuyers can qualify for VA and FHA Loans during Chapter 13 Bankruptcy repayment plan via manual underwriting
- Need trustee approval
- Chapter 13 Bankruptcy does not need to be discharged
- There is no waiting period to qualify for VA and FHA Loans after Chapter 13 Bankruptcy discharged date
Any FHA and/or VA Loans without a two-year seasoning after Chapter 13 Bankruptcy discharged date needs to be manually underwritten.
Qualifying For VA And FHA Manual Underwriting With Late Payments
Manual Underwriting With Late Payments is possible if borrowers have extenuating circumstances. Borrowers who had a death in the family, had major health issues, or suffered job loss can potentially qualify for VA and/or FHA Manual Underwriting With Late Payments. Please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response to go over your case scenario. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
