Human error is prominent, loan officers are no exception. Underwriting guidelines require a multitude of information to be processed. Overlooking a specific credit requirement is not necessarily a rarity. In recent years, the use of automated programs to determine underwriting guidelines for mortgage loans has become the industry standard. The overwhelming majority of lenders have converted to using the Automated Underwriting System. These programs look at mortgage delinquency risks and credit factors. After the loan application is entered into the system it is quickly combined with a credit report to determine if the applicant is eligible for an approval or not.
The Automated Underwriting System benefits both the lender and borrower by cutting down on waiting time. Often, using these programs means upfront approval. Additionally they reduce closing costs and require less documentation. Generally, instead of having to provide the lender with W2’s from the previous two years and two months of pay stubs, the most recent pay stub will suffice.
Different lenders use different systems, perhaps the most prominent Automated Underwriting System used is the Fannie Mae Desktop Underwriter®.
Desktop Underwriter® provides a comprehensive risk versus reward analysis of the potential borrower. This system looks at the applicants’ revolving credit use, credit history, delinquent accounts, credit inquiries and public records, including collections and foreclosures.
Desktop Underwriter® offers two important benefits to consumers, reduced cost and higher approval rates among certain borrowers. The cost of a standard credit report ranges from $65 to $90, whereas Desktop Underwriter® requires a nominal fee of $25. In the past, applicants with good credit but limited money for a down payment may have been denied a loan, using this system that would be an unlikely outcome.
This program also allows a borrower to submit a loan application before identifying a specific property to purchase, presenting the borrower greater leverage when negotiating with a seller.
Learn more about the VA Home Loan here.