Understanding Automated Underwriting: What It Is and What the Results Mean

When applying for a mortgage, one of the key steps in the process is the automated underwriting system(AUS). But what is it, and why does it matter for homebuyers?

What Is Automated Underwriting?


Automated underwriting is a technology-driven process used by mortgage lenders to assess a borrower's financial eligibility for a home loan. It evaluates an applicant's creditworthiness, income, assets, and debts by processing information through software systems like Fannie Mae’s Desktop Underwriter (DU), Freddie Mac’s Loan Product Advisor (LPA), or other lender-specific platforms.

The system uses preset criteria based on loan guidelines to quickly deliver a decision, which helps lenders and borrowers save time compared to manual underwriting.


Why Is It Important?


Automated underwriting helps streamline the mortgage process by:

  1. Determining eligibility for various loan types (e.g., FHA, USDA, or conventional loans).
  2. Identifying potential issues in a borrower’s application early on.
  3. Providing loan conditions that must be met for approval.


Common Results From Automated Underwriting

When an automated underwriting system evaluates an application, it provides one of several possible results. Here's what they mean:


1. Approved/Eligible


  1. What it means: You meet the guidelines for the loan program you applied for.
  2. Implications: Your financial profile fits the lender's requirements, and your loan is likely to proceed with minimal additional documentation.
  3. Next steps: Provide any required documents to verify the information entered into the system (e.g., pay stubs, tax returns).


2. Refer/Eligible


  1. What it means: You may qualify for the loan program, but additional manual underwriting is needed to make a final decision.
  2. Implications: There might be a minor issue with your application, such as slightly higher debt-to-income (DTI) ratios, limited credit history, or irregularities in income.
  3. Next steps: A manual underwriter will review your file to determine if compensating factors (like savings or a strong employment history) justify approval.


3. Refer with Caution

  1. What it means: The automated system found significant issues with your application, such as low credit scores, excessive debt, or insufficient income.
  2. Implications: This result typically indicates the loan cannot be approved without significant changes, such as reducing debt or improving credit.
  3. Next steps: Work with your lender to address the flagged issues, or consider alternative loan programs like FHA or USDA loans that may have more flexible requirements.


4. Ineligible


  1. What it means: Your application does not meet the requirements for the loan program.
  2. Implications: This result could stem from major discrepancies in your application, like insufficient income, high DTI, or incomplete information.
  3. Next steps: Review the application details with your lender to identify errors or consider steps to strengthen your financial profile.


5. Out of Scope


  1. What it means: The system cannot evaluate your application because it falls outside the parameters of automated underwriting.
  2. Implications: Complex financial situations, such as self-employed borrowers or those with non-traditional income, may require manual underwriting.
  3. Next steps: Expect additional documentation requests and a longer review process by a manual underwriter.


How to Improve Your Results


If your automated underwriting results are less favorable than you'd hoped, there are several steps you can take:


  1. Improve your credit score: Pay down credit card balances and resolve any errors on your credit report.
  2. Reduce your debt-to-income ratio: Pay off small debts or avoid taking on new ones before applying for a loan.
  3. Build savings: Having more cash reserves can act as a compensating factor for a higher DTI.
  4. Provide complete and accurate information: Ensure your lender has up-to-date details about your income, assets, and liabilities.


Final Thoughts


Automated underwriting is a critical step in the mortgage approval process, offering lenders a quick way to evaluate your eligibility for a loan. By understanding the potential results and their implications, you can better navigate the process and take steps to improve your chances of approval. If you're unsure about what your results mean or how to improve them, work with me for personalized advice.

This knowledge can empower you as a borrower to confidently move forward in your homebuying journey!


Let us help you!

Our representative will be in touch with you.

The Right Tools to Help you Every Step of the Way

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.