What is automated underwriting?
Realtors have heard lenders talk about “automated underwriting”, but many don’t understand exactly what that means. Automated underwriting is a computer program that uses an algorithm (a mathematical formula) to provide a loan recommendation (approval or denial). It serves as a risk calculator tool for lenders. The recommendation is just that: a recommendation. Lenders are under no obilgation to issue a loan approval just because automated underwriting determines a loan to be approved, but most will as long as they determine the overall loan parameters to be reasonable. Many lenders have recently instituted arbitrary guidelines that supercede automated approvals, such as maximum debt-to-income ratios and requirements to pay off collections over a certain amount. A few years ago, most lenders would accept an automated underwriting approval regardless of whether the loan had excessive risk factors, but the recent surge in foreclosures has caused many lenders to re-think this policy. Auto
