Refer Versus Approve/Eligible Per AUS Findings Approval
In this blog, we will cover and discuss the automated findings of refer versus approve/eligible per automated underwriting system. The U.S. Housing And Urban Development (HUD), the parent of FHA, has changed its algorithms for the Automated Underwriting System (AUS). It is now tougher to get 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. In the following paragraphs, we will cover refer versus approve/eligible per AUS findings approval.
Manual Underwriting on Refer Versus Approve/Eligible Per AUS Findings Approval
Not all lenders do manual underwriting. Non-QM Mortgage Brokers is one of the very few mortgage companies 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.
What Does Refer Versus Approve/Eligible Per AUS Mean
There are instances when loan officers cannot get approve/eligible per the 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 to the file being manually underwritten by a human mortgage underwriter. There are certain rules and guidelines when it comes to manual underwriting.
FHA TOTAL Scorecard Guidelines on FHA Loans
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.
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 on Manual Underwriting
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.
HUD Guidelines on Automated Versus Manual Underwriting
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 automated approval on AUS on FHA loans. However, recently, HUD changed its algorithms on both Fannie Mae and Freddie Mac’s Automated Underwriting System to make it tougher in getting automated approval for 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 Non-Qm Mortgage Brokers can do manual underwriting.
Manual Underwriting Guidelines on FHA Loans
Manual underwriting guidelines apply. In this paragraph, we will cover 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 and down to 500 FICO, HUD requires a 10% down payment. There is a two-year waiting period after the Chapter 7 Bankruptcy discharge date. The three-year waiting period after foreclosure, deed in lieu of foreclosure, and short sale. Outstanding collections and charge-off accounts do not have to be paid to qualify for FHA loans.
Debt to Income Ratio Guidelines on Manual Underwriting
The maximum debt-to-income ratio to get an AUS Approval on FHA loans is 46.9% front end and 56.9% back end. USDA loans cap the front-end debt-to-income ratio at 29% and the back-end debt-to-income ratio at 43%.
VA loans do not have a maximum debt-to-income ratio cap from the Veterans Administration. You can get an approve/eligible up to 65% debt-to-income ratio on VA loans as long as you have strong residual income.
Fannie Mae Debt-To-Income Ratio Guidelines on Conventional Loans
Fannie Mae and Freddie Mac do not have a front-end debt-to-income ratio on conventional loans. The maximum debt-to-income ratio on conventional loans to get an approve/eligible per automated underwriting system is 50%. The debt-to-income ratio on Non-QM loans depends on the individual non-QM mortgage lender. However, in general. non-QM loans have a cap of 50% debt-to-income ratio depending on the non-QM mortgage lender.
Debt to Income Ratio on Manual Underwrites
FHA and VA loans are the only two mortgage loan programs that allow for manual underwriting. FHA and VA loans have the exact mortgage guidelines on manual underwriting.
Manually underwritten loans on VA and FHA loans require 31%/43% with no compensating factor, 37%/47% with one compensating factor, and 40%/50% with two compensating factors.
Debt To Income Ratio Guidelines on FHA and VA Loans While on Chapter 13 Bankruptcy
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 the Chapter 13 Bankruptcy discharge date. Any discharge with less than two years of seasoning needs to be manually underwritten.
Borrowers who need to qualify for FHA loans with the best non-QM mortgage broker licensed in 48 states with no overlays, please contact us at Non-QM Mortgage Brokers, Inc. at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Non-QM Mortgage Brokers is available 7 days a week, evenings, weekends, and holidays.
