All lenders use the automated underwriting system on government and conventional loans before proceeding to the next step of the mortgage process. The automated underwriting system is commonly referred to as AUS.

There are two different versions of the automated underwriting system:

• Fannie Mae’s Desktop Underwriter commonly referred to as DU
• Freddie Mac’s Loan Prospector often referred to as LP
• Most lenders prefer to use Fannie Mae’s DU versus Freddie Mac’s LP

Purpose Of The Automated Underwriting System Used By Mortgage Lenders

Both Fannie Mae’s DU and Freddie Mac’s LP AUS is a sophisticated computer systems that can render an automated decision on whether or not a borrower meets the minimum agency mortgage guidelines on FHA, VA, USDA, and/or Conventional loans. The loan officer will input the borrower’s mortgage loan application (1003), tri-merger credit report, and other data into the automated underwriting system. Within seconds, the automated underwriting system will render its findings.

The automated underwriting system is similar to a sophisticated computerized brain that has been programmed with all the recent agency guidelines on each loan program. The algorithm knows every aspect of each agency’s mortgage guidelines. The findings will render an approve/eligible, refer/eligible, or refer with caution. In the next paragraph, we will go over what the three findings of the AUS mean and how lenders proceed with each finding.

Analyzing The Automated Findings Of The AUS

The loan officer enters the borrower’s mortgage loan application, tri-merger credit report, and other data in the automated underwriting system (AUS). Within seconds, the AUS will enter one of three findings:

Approve/Eligible per AUS:

• An approve/eligible is what you are hoping for
• An approve/eligible means the borrower meets all the agency lending guidelines of the loan program requested for an automated approval

Refer/Eligible per AUS:

• A refer/eligible AUS Findings mean the borrower may be eligible for a mortgage
• However, the automated underwriting system cannot render an automated approval
• The borrower can be approved if a human mortgage underwriter manually underwrites the file
• Refer/Eligible AUS findings can be manually underwritten
• However, only FHA and VA loans allow manual underwriting
• Conventional loans do not
• USDA does not allow for manual underwriting
• Only FHA and VA loans allow for manual underwriting

Refer With Caution:

• A refer with caution per AUS Findings means the borrower does not qualify
• A refer with caution findings is common if the AUS detects the borrower has not met the minimum waiting period requirements after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
• The loan officer can analyze and review the AUS Findings and see if there were any errors in inputting the data, check for dates, and go over the borrower disclosure form on the YES and/or NO boxes checked

There are ways of trying to get a refer/eligible and/or refer with caution findings to approve/eligible AUS findings. We will discuss and cover this topic on the next paragraph.

Solution In Trying To Get A Refer/Eligible and Refer With Caution To An Approve/Eligible Per AUS

Experienced loan officers can try to analyze why the AUS did not render an approve/eligible per AUS. The loan officer can try playing around with the data and see why the AUS did not render an approve/eligible. The AUS will render an automated decision with the data being entered.

The loan officer can try the following and see what the AUS renders:

• Try a higher down payment
• For example, on FHA loans, instead of a 3.5% down payment, try a 5% or 10% down payment
• Try adding reserves such as three to six months in reserves
• If the down payment is gifted, try to enter the down payment and closing costs as your own funds
• Gift funds are not viewed favorably
• If the borrower has late payments after bankruptcy and/or a housing event, try switching from DU AUS to LP AUS and/or vice versa
• There are times when Freddie Mac LP AUS is more favorable on late payments after bankruptcy and/or foreclosure versus Fannie Mae DU AUS and vice versa

You will be surprised on how using a few tricks of the trade, a refer/eligible AUS findings can become an approve/eligible per AUS.

The Difference Between Manual Versus Automated Underwriting System

FHA and VA loans are the only two home mortgage program that allows manual underwriting.

• There is not too much difference between manual and AUS-approved underwriting
• The main difference is in manual underwriting, there are debt-to-income ratio caps that is recommended by FHA and VA
• Both FHA and VA manual underwriting guidelines are the same
• VA loans do not have a maximum debt-to-income ratio cap with an AUS approve/eligible
• However, the maximum debt-to-income ratio recommended on manual underwriting on FHA and VA loans depends on the number of compensating factors
• Compensating factors are positive factors borrowers have that lessen the risk of lenders

Examples of compensating factors include the following:

• Payment shock of lower than 5% where the new housing payment is less than a 5% increase of the previous rental payment
• Part-time and/or other income borrower makes but not being used for qualifying income
• The borrower has a history of saving money 
• The borrower has a history of getting consistent job promotions and wage increases
• Three months or more of reserves (one month of reserves is equivalent of one month’s of principal, interest, taxes, insurance (P.I.T.I.)
• Non-borrowing spouse with a full-time job

Normally, most lenders will require verification of rent on all manual underwrites. However, Capital Lending Network, Inc. will waive verification of rent from borrowers who are living rent free with family to save money for their down payment and closing costs on a home purchase. We will provide a living rent-free with family form that needs to be completed, signed, and dated by the family member who the borrower is living rent-free.

Debt To Income Ratio Caps On Manual Underwriting

Here are the recommended FHA and VA manual underwriting guidelines on debt-to-income ratio caps:

• The maximum front end debt to income ratio is capped at 31% and the maximum back end at 43% with zero compensating factors
• The maximum front-end DTI is capped at 37% and the back end at 47% with one compensating factors
• The maximum front-end DTI is capped at 40% and back-end DTI at 50% with two compensating factors

What is an Automated Underwriting System (AUS)?

An AUS is a computerized system that helps lenders save time and money by automating the underwriting process. AUS systems are designed to quickly and accurately assess a borrower’s creditworthiness, capacity, and collateral.

This allows lenders to make more informed lending decisions and provide borrowers with more competitive loan terms. Why use an AUS? Using an AUS can help you get a loan approval faster and with fewer conditions. It can also help you get a better interest rate because the system provides lenders with more information about your creditworthiness.

How does an AUS work?

An AUS uses information from your loan application to generate a credit report, which is then used to assess your creditworthiness. The system also looks at other factors such as your employment history, debts, and assets. Based on this information, the AUS will give your loan application a score that represents your risk level. Lenders use this score to determine whether or not to approve your loan.

What are the benefits of using an AUS?

Using an AUS can help you get a loan approval faster and with fewer conditions. It can also help you get a better interest rate because the system provides lenders with more information about your creditworthiness. An AUS can also save you time and money by automating the underwriting process.

What are the disadvantages of using an AUS?

There are a few disadvantages to using an AUS. First, you may need to pay a fee to use the system. Second, the AUS may not be available to all lenders. Third, the system may not always give accurate results. Fourth, you may not be able to appeal a decision made by the AUS. Finally, you may not be able to get a loan if your credit score is too low.

Should Your Loan Officer Use an AUS?

Whether or not you should use an AUS depends on your situation. If you need a loan quickly and have good credit, using an AUS may be a good option for you. However, if you have bad credit or are not sure about your creditworthiness, you may want to avoid using an AUS.

DU Automated Underwriting System

du automated underwriting system is a powerful tool that allows mortgage lenders to make faster and more accurate decisions when considering a loan application. If you’re in the process of applying for a mortgage, it’s important to understand how the underwriting system works and what impact it can have on your chances of getting approved. Here’s a brief overview of the du automated underwriting system and what you need to know about it.

What is the DU Automated Underwriting System?

The du automated underwriting system is an online platform that helps mortgage lenders evaluate loan applications. It’s a tool that assesses the risk of a loan and provides recommendations on whether to approve or deny the application.

The system is based on data from Fannie Mae and Freddie Mac, two government-sponsored enterprises that buy mortgages from lenders and package them into securities. The du automated underwriting system assesses the risk of a loan by looking at factors such as the borrower’s credit score, employment history, and debt-to-income ratio.

The du automated underwriting system can have a major impact on your loan application. If your loan application receives a high-risk score, it is likely to be denied by the lender. Conversely, if your loan application receives a low-risk score, it is more likely to be approved. In some cases, the system may even recommend that the lender increase or decrease the interest rate on the loan.

What are the benefits of the du automated underwriting system?

There are several benefits of the du automated underwriting system. First, it helps mortgage lenders make faster and more accurate decisions when considering a loan application. This is because the system does all of the work for the lender in assessing the risk of the loan. Second, it gives borrowers a better chance of getting approved for a loan. This is because the system takes into account a broader range of factors than most lenders do when making their decision. Third, it helps to keep interest rates low. This is because the system recommends that lenders only increase interest rates when necessary.

Mortgage underwriters have a lot of underwriter discretion on manual underwrites. Mortgage underwriters can go above the above maximum debt-to-income ratio caps for borrowers with multiple strong compensating factors. This holds especially true on VA loans.

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