Desktop underwriting: What Is It and How Does It Work?
One way that Fannie Mae determines if a potential borrower is a viable investment is through the usage of its Desktop Underwriter program. This is accomplished by taking into account things like:
- Experience in the Workplace
Inputs such as these are used to determine whether a borrower fits the requirements for a certain kind of loan. If the conditions are satisfied, an automatic approval will be issued.
When it comes to underwriting mortgages, Desktop Underwriter is the gold standard.
Because it’s automated, loan originators may use logic and algorithms to make judgments. Discrimination based on a person’s ethnicity, gender, or other characteristics is no longer an issue.
Manual underwriting may be required if Desktop Underwriter cannot provide an automatic approval.
Name spelled differently: Desktop Originator (used by sponsored mortgage brokers to access Desktop Underwriter)
The abbreviation for DU is (or DO)
What Is the Process of Desktop Writing?
Borrowers are asked to fill out a document known as Form 1003 when applying for a mortgage loan (said as form “ten-oh-three”).
A Form 1003 may have the following questions:
- kind of loan and the conditions of the agreement
- The location of the property and the reason for the loan.
- Inquire about the borrower
- a listing of available positions
- Earnings per month
- Ownership of property
- Information about the transaction
Inputs in DU correspond to the sections of Form 1003. This data, together with data from over 75 third-party providers, is then used by the program to determine whether or not you fulfill the risk level for approval.
DU does not verify the income that is reported to them. A buyer’s income cannot be verified by a seller who wants to see whether the borrower can afford the residence. An income verification is not required until after loan processing has begun. It may be necessary to resubmit the loan case file if the borrower’s income (or any other relevant data) changes.
DU is only as excellent as the effort you put into it. Inaccurate or missing information might have a negative impact on your chances of receiving an offer. A loan’s federal compliance is not addressed by DU either. The lender is responsible for that portion.
What Is Included in Desktop Writing?
Your credit score and your debts play key roles in the approval procedure. These factors have an impact on whether or not you can be relied upon to repay the money you borrow on schedule. That works like this:
Scores on the FICO system
Your FICO score, which measures your creditworthiness, will be considered. You do not, however, have to purchase your FICO score report online. This information is gathered by DU via the use of third-party suppliers such as credit reporting agencies.
The FICO ratings lenders use may differ from the ones you see in your bought report. Most of the time, just the best and worst of the three scores are considered.
Conventional loans supplied to Fannie Mae have higher minimum FICO score criteria than do FHA loans. Lower interest rates and more favorable loan conditions are more often associated with borrowers with higher FICO scores. Interest rates are frequently higher for those with lower FICO scores.
Ratios of Debt-to-Income
As a proportion of your salary, lenders want to know how much debt you carry. They can see how much money you have available each month to pay your mortgage by looking at this. The front-end and back-end of your debt-to-earnings ratio are both included in your financial statement.
In the front-end ratios, the total monthly mortgage payment is calculated as a proportion of gross monthly salary. Payments for principle, interest, and taxes and insurance might include private or mutual mortgage insurance. If the property is part of a homeowners association, you’ll need to pay a monthly HOA fee.
Everything you owe is included into the back-end ratio. This is the total amount owed on all revolving debt, as reported to the credit reporting agencies. Having debt, such as school loans or credit card debt, means that this ratio will be much larger than the front-end ratio.
As a prospective borrower, the lower your interest rate, the more attractive you look. To be rejected if your ratio is too high.
The back-end ratio will be approaching 50% for many applications. Paying down part of your debt before applying for a new mortgage may be a better option if your gross monthly income is being used to pay off debt and pay for a new home.
Is Desktop Underwriting Necessary?
Being authorized by DU is an important element of the home-buying process for many purchasers. Most individuals can’t afford to buy a house altogether and will have to take out a loan to do so.
A crucial part of the procedure is getting your loan authorized by a mortgage underwriter.
The DU will offer an automated approval or refusal after your information has been entered. This paper will also tell you what documents are required to validate the inputs. The DU may be resubmitted after the mortgage underwriter obtains those documents.
Conditions must be satisfied before the loan may be closed by the DU. If all of the above conditions are satisfied, the loan may be finalized.
For the most part, lenders don’t distribute DU reports without your permission. This is due to the fact that it gives you a close-up view of your financial situation.
Having a DU approval might provide buyers an advantage in competitive real estate markets. With this letter, the seller feels more certain that you will be able to meet your financial obligations and go through with the deal.
The Most Important Things to Remember
- If a loan is eligible for approval, Desktop Underwriter uses an automated approach to determine this.
- Fannie Mae and the Federal Housing Authority both utilize it.
- In order to determine whether a borrower would be authorized for a loan, the program employs Form 1003 and over 75 third-party providers.
- Having a DU approval in hand might provide you an advantage in competitive real estate markets.