Alex Carlucci The Mortgage Expert,
Publish On: December 7, 2022
This blog will cover and discuss manual underwriting with late payments mortgage guidelines on VA and FHA loans. You need timely payments in the past 24 months to qualify for manual underwriting on FHA and VA loans.
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, such as hospital and medical records, need to be documented. This article will cover manual underwriting with late payments in the past 24 months on FHA and VA loans.
Mortgage Programs That Allow Manual Underwriting
FHA and VA loans allow manual underwriting.
Borrowers who cannot get approve/eligible per the automated underwriting system (AUS) can qualify for manual underwrites. Borrowers need a refer/eligible per AUS to qualify for FHA and VA manual underwriting.
Do All Lenders Do Manual Underwriting?
Not too many lenders will do Manual Underwriting With Late Payments. With manual underwriting, borrowers need timely payments in the past 24 months.
Gustan Cho Associates can do Manual Underwriting With Late Payments in the past 24 months as long as borrowers have extenuating circumstances. This blog will discuss FHA and VA Manual Underwriting With Late Payments Mortgage Guidelines.
FHA And VA Manual Underwriting Guidelines
FHA and VA Manual Underwriting Guidelines are very similar. When the automated underwriting system renders, refer/eligible per AUS, FHA, and 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 are no different than automated underwriting approved files.
How Mortgage Underwriters Review Manual Underwriting Borrowers
The 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 VA.
Manual Underwriting With Late Payments is not allowed by most lenders. Most lenders do not want any late payments in the past 24 months.
Timely Payments After Bankruptcy and Foreclosure
There are no late payments after bankruptcy, foreclosure, deed-in-lieu of foreclosure, or 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.
How Does The Automated Underwriting System Work?
The automated underwriting system (AUS) is an intricate, sophisticated system residential mortgage lenders use on all loan applications. Loan officers will enter borrowers’ data, credit, and income profiles into the automated underwriting system. Here are the steps in the mortgage underwriting process. 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 decide 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). Sometimes, 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 ratio 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 two or more compensating factors. HUD allows 31/41 DTI with no compensating factors. 37/47 with one compensating factor. 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 is required on all manual underwrites. Gustan Cho Associates will exempt rental verification if the borrower lives 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 living rent-free with the borrower.
The Importance of Timely Payments in the Past 24 Months on Manual Underwriting
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 month of principal, interest, taxes, and principal (PITI). Reserves cannot be gifted. It needs to be the borrowers’ own funds. Compensating factors are important for borrowers with late payments in the past 24 months or those with a 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 ratios. 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 for an income
- History of job promotions and the borrower getting more training and education to further their career.
- History of saving money and lower credit utilization ratio on revolving accounts
- The working spouse who is not on the loan
- Job longevity on the same job and same field of employment
Manual Underwriting With Late Payments: FHA And VA Guidelines after Bankruptcy and Housing Event
Homebuyers can qualify for FHA and VA loans after bankruptcy, foreclosure, deed in-lieu-of foreclosure, or 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, and short sale to qualify for FHA loans.
VA Manual Underwriting Guidelines
VA requires a two-year waiting period after Chapter 7 Bankruptcy, foreclosure, deed-in-lieu of foreclosure, or short sale to qualify for VA loans. Homebuyers can qualify for VA and FHA loans during the 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 the Chapter 13 Bankruptcy discharge date. Any FHA and VA loans without a two-year seasoning after the Chapter 13 Bankruptcy discharge date must 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 died in the family, had major health issues, or suffered job loss can potentially qualify for VA and FHA Manual Underwriting With Late Payments. Please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response to discuss your case scenario. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
