This BLOG On TBD Underwriting Guidelines On Home Purchase Pre-Approvals Was UPDATED And PUBLISHED On December 28th, 2019
Updated TBD Underwriting Guidelines:
TBD stands for To Be Determined.
- A TBD Underwriting is when a mortgage loan application is processed and submitted to underwriting without a subject property
- Mortgage Underwriters issue TBD Underwriting Approvals and not loan officers
- With traditional underwriting, the mortgage loan applicant first obtains a pre-approval by a mortgage loan originator
- The loan originator reviews the mortgage loan application and reviews the mortgage applicant’s credit scores and credit report
In this article, we will cover and discuss the benefits of TBD Underwriting Approvals versus traditional standard pre-approvals.
Difference Between TBD And Regular Pre-Approvals
The loan officer then collects documents such as the following:
- two years tax returns
- two years W-2s
- 60 days bank statements
- most recent paycheck stubs
- other documents that pertain to the qualifying the mortgage loan applicant
The mortgage loan originator then submits the mortgage application to the automated underwriting system for a decision:
- An approve/eligible per DU FINDINGS and/or LP FINDINGS is what lenders need to go forward
- Once the mortgage loan applicant gets an approve/eligible per automated findings, a pre-approval is normally issued by the loan officer
TBD Underwriting Approvals are solid loan commitments where it has been fully underwritten and signed off by our mortgage underwriters.
Some lenders like Gustan Cho Associates has no lender overlays:
- Gustan Cho Associates just go off automated findings
- As long as borrowers get an approve/eligible per DU FINDINGS and/or LP FINDINGS, we will just go off the findings
- We have no issues and close on the mortgage loan
- However, even with an approve/eligible per automated findings, borrowers can run into issues especially if you have a higher debt to income ratios.
Home Buyers With High Debt To Income Ratios
Homebuyers who have a higher debt to income ratios can really run into problems if they run into cost overruns such as the following:
- higher homeowners insurance premiums
- or if the underwriter may not count overtime income
- bonus income
- part-time income or other income
With FHA Loans, the maximum front end is capped at 46.9% and back end debt to income ratios is capped at 56.9% to get an approve/eligible per automated underwriting system:
- There are many mortgage loan applicants who I represent that are at the maximum 56.9% debt to income ratio
- A one-dollar increase in monthly payments will automatically disqualify this mortgage loan applicant
- Buyers who have a higher debt to income ratios have a risk factor that they might have the potential of a mortgage loan denial
This is why a borrower who has credit issues and/or higher debt to income ratios should get a TBD Underwriting Approval by a loan officer versus a pre-approval signed off by a loan officer.
Borrowers With Overtime Income, Part-Time Income, Bonus Income
Technically, overtime, part-time, and bonus income can be used to qualify as income as long as the mortgage loan applicant has a two-year history.
- However, mortgage underwriters have the discretion of either using overtime income, part-time income, bonus income or discounting it
- The overtime income, part-time income, bonus income, or not counting that income all together in the event of declining over time, part-time, and bonus income is up to underwriter’s discretion
- The underwriter’s decision is not known until the file in underwriting
- So many borrowers who are counting on this income to qualify do not know the final outcome until the whole mortgage application package is in front of the mortgage underwriter for review
- If the mortgage underwriter uses underwriter’s discretion and excludes the overtime, part-time, or bonus income and the borrower needs this income to meet the debt to income ratio requirement, the loan application will be denied
These case scenarios are when a TBD Underwriting is the mortgage approval process of choice.
TBD Underwriting Guidelines On FHA Back To Work Extenuating Circumstance Due To An Economic Event
HUD has launched the FHA Back to Work Extenuating Circumstances due to an Economic Event mortgage loan program on August 15, 2013, where it shortened the waiting period after bankruptcy and foreclosure to a one year waiting period. Unfortunately, this program turned out to be a total flop. Very few of these loans ever made it to the closing table.
- The standard waiting period after bankruptcy is 2 years after the discharge date of the bankruptcy
- The standard waiting period is 3 years after foreclosure, deed in lieu of foreclosure, and short sale
- All FHA Back to Work mortgage loan applications are manual underwriting
- Manual underwriting is where a mortgage underwriter will personally review and decide on whether or not to approve the mortgage loan application
- Since the inception of the FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program, many applicants have gotten denials
- The FHA Back to Work mortgage program would have been a great program where a TBD Underwriting will be ideal
- We would have recommended a TBD UNDERWRITING ON BACK TO WORK MORTGAGES due to the high rate of mortgage loan denials
Unfortunately, TBD Underwriting Guidelines were not existent when the Back To Work Loan Program was in effect. Today HUD has discontinued the FHA Back To Work Mortgage.
TBD Underwriting Guidelines And Lenders With No Overlays
Not too many lenders will take on a TBD Underwriting mortgage application.
- Fortunately, we are able to do TBD Underwriting Guidelines
- TBD Underwriting Guidelines benefits higher risk mortgage loan applicants where their chances are 50/50 in getting a mortgage loan approval
With a TBD Underwriting Loan Approval, borrowers do not have to go through the following:
- Go through getting a purchase real estate contract
- Putting down earnest money
- Spending money for a home inspection
- Taking a potential chance of a mortgage loan denial
Why not go through a TBD Underwriting and get the mortgage approval first. After getting the mortgage loan approval the only condition left is to get a real estate purchase contract and appraisal and you will get a clear to close.