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Refer Versus Approve/Eligible Per Automated Underwriting System

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Refer Versus Approve/Eligible Per Automated Underwriting System

This BLOG On Refer Versus Approve/Eligible Per Automated Underwriting System Was PUBLISHED On May 7th, 2019

The U.S. Housing And Urban Development (HUD), the parent of FHA, has changed its algorithms on the Automated Underwriting System (AUS).

  • It is now tougher to get an approve/eligible per automated underwriting system (AUS) for borrowers with under 640 credit scores
  • HUD FHA 4000.1 Handbook remains the same, but FHA wants more of a Refer Versus Approve/Eligible for borrowers under 640 FICO
  • Borrowers with refer/eligible can still qualify for FHA Loans but it needs to be manually underwritten
  • Manual underwriting is when a human mortgage underwriter needs to underwrite an FHA Loan
  • There is more scrutiny on manual underwriting
  • Not all lenders do manual underwriting. Gustan Cho Associates at Loan Cabin Inc. is one of the very few national direct lenders that does manual underwriting
  • We have no overlays on FHA Manual Underwriting

In this blog, we will discuss Refer Versus Approve/Eligible on FHA Loans.

Refer Versus Approve/Eligible
Gustan Cho Associates

What Does Refer Versus Approve/Eligible Per AUS Mean

There are instances when loan officers cannot get an approve/eligible per automated underwriting system.

  • What this means is that the automated underwriting system cannot determine how strong the borrower is
  • The AUS will render a refer versus approve/eligible per AUS
  • A refer/eligible per automated underwriting system means that the file is not approved nor denied
  • The AUS is referring the file to be manually underwritten by a human mortgage underwriter
  • There are certain rules and guidelines when it comes to manual underwriting
  • Mortgage underwriters need to make sure that borrowers meet all FHA TOTAL ScoreCard Guidelines
  • Mortgage underwriters have a lot of underwriter discretion when it comes to manual underwriting
  • For example, borrowers are required to have timely payments in the past 24 months with no late payments with manual underwrites
  • However, mortgage underwriters can make an exception and permit one or two late payments in the past 24 months if the event was due to extenuating circumstances
  • Verification of rent is required on all manual underwriting
  • However, mortgage underwriters can make an exception and exempt rental verification if the borrower has been living rent-free with family members due to saving their money for their down payment

Compensating Factors are very important with manually underwritten loans. This holds true if borrowers have higher debt to income ratios.

FHA Loans And HUD Guidelines

FHA Loans are very popular for first time home buyers and borrowers with less than perfect credit and higher debt to income ratios. Up to now, it was very easy to get an automated approval on AUS on FHA Loans. However, recently, HUD changed its algorithms on both Fannie Mae and Freddie Mac Automated Underwriting System to make it tougher in getting an automated approval with borrowers with under 640 credit scores. Borrowers with under 640 credit scores will be getting more refer versus approve/eligible per AUS. If borrowers get a refer versus approve/eligible, the file needs to be manually underwritten. Not all lenders can do manual underwriting.  The good news is that Gustan Cho Associates at Loan Cabin Inc. can do manual underwriting. Manual underwriting guidelines apply. Here are the basic HUD Guidelines to qualify for FHA Loans:

  • 580 credit scores for 3.5% down payment home purchase FHA Loans
  • Under 580 credit scores, require 10% down payment
  • Two year waiting period after Chapter 7 Bankruptcy discharged date
  • Three year waiting period after foreclosure, deed in lieu of foreclosure, short sale
  • Outstanding collections and charge off accounts do not have to be paid to qualify for FHA Home Loans
  • Maximum debt to income ratio to get an AUS Approval is 46.9% front end and 56.9% back end
  • Manually underwritten loans require 31%/43% with no compensating factor, 37%/47% with one compensating factor, and 40%/50% with two compensating factors
  • Borrowers in a current Chapter 13 Bankruptcy plan can qualify for FHA Loans via manual underwriting after one year into their repayment plan with Trustee Approval
  • There is no waiting period after Chapter 13 Bankruptcy discharged date 
  • Any discharge with less than two years seasoning needs to be manually underwritten

Borrowers who need to qualify for FHA Loans with a direct lender with no overlays, please contact us at Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text us for a faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays.

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