FHA Downgrade To Manual Underwriting From AUS Approval

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Mortgage underwriters can use underwriter discretion and issue an FHA downgrade to manual underwriting from a file approved/eligible due to the borrower’s risk factors. An FHA downgrade to manual underwriter can happen if the borrower has declining income, a high debt-to-income ratio, multiple late payments, substantial collections, low credit scores, gaps in employment, high payment shock, and other layered risks.

If you get an FHA downgrade to manual underwriting by a lender, you can transfer your mortgage to a different lender with no overlays. Not all mortgage companies do an FHA downgrade to manual underwriting on an automated approved mortgage loan application.

In the following sections of this article, we will cover the mechanics of an FHA downgrade to manual underwriting from an approve/eligible per automated underwriting system on FHA loans. Lenders can do VA and FHA downgrade to manual underwriting on borrowers who got an approve/eligible per automated underwriting system due to one or more risk levels the lender faces.

Manual Underwriting Versus Automated Underwriting System Approved FHA Loan

There is little difference between manual underwriting and automated underwriting system FHA loans except for lower debt-to-income ratio caps on manual underwrites. Mortgage underwriters can do an FHA downgrade to manual underwriting on an AUS-approved borrower. However, not all lenders will do an approve/eligible per AUS file to a manual underwrite due to high risk.

You need timely payments on all of your payments for the past 24 months on manual underwrites for FHA loans. Compensating factors determine how high your front-end and back-end debt-to-income ratio caps can be.

FHA and VA loans are the only mortgage programs allowing manual underwriting. Manual underwriting is when a borrower cannot get approve/eligible per an automated underwriting system (AUS). In the following paragraphs, we will discuss FHA downgrade to manual underwriting on FHA loans.

What Is Required For Manual Underwriting?

Borrowers who get a refer/eligible per the automated underwriting system are eligible for manual underwriting on FHA and VA loans.

Another instance when a manual versus automated underwriting is required is when the mortgage underwriter downgrades an AUS-approved borrower to manual underwriting.

Not all lenders do manual underwriting. FHA Bad Credit Lenders Mortgage Group does a lot of manual underwriting on FHA and VA loans.

FHA Loans While In Chapter 13 Bankruptcy Guidelines

Borrowers who are in a current active Chapter 13 repayment plan need to be manually underwritten on FHA and VA loans. Those with a Chapter 13 bankruptcy discharge without the discharged date seasoned for 24 months need to be manually underwritten.

The team at FHA Bad Credit Lenders are experts in manual underwriting. Borrowers in an active Chapter 13 Bankruptcy repayment plan need a manual underwrite. If the Chapter 13 Bankruptcy has been discharged and it is less than two years old from the discharge date, the FHA loan needs to be manually underwritten.

There are other instances when a mortgage needs to be manually underwritten. In this article, we will discuss and cover FHA Downgrade To Manual Underwriting On FHA Loans.

Does FHA Allow For Manual Underwriting?

All refer/eligible per automated underwriting system (AUS) findings are eligible for manual underwriting on FHA and VA loans. What refer/eligible means is the borrower may qualify for a government and/or conventional loan.

If a borrower gets an approve/eligible per automated underwriting system with credit disputes, you do not have to remove the credit disputes if you do an FHA downgrade to manual underwriting. It is best recommended to downgrade to manual underwrite and not remove the credit disputes. Removing the credit disputes can lower your credit scores.

However, the automated underwriting system cannot render an approve/eligible finding. The file needs to have a human mortgage underwriter fully review, process, and underwrite the file.

What Triggers a Manual Underwriting Downgrade

There are cases when a file gets downgraded to a manual underwrite: The mortgage file contains information or documentation that cannot be entered into or evaluated by the TOTAL Mortgage Scorecard. Additional information, not considered in the Automated Underwriting System (AUS) recommendation affects the overall insurability of the Mortgage.

Borrowers cannot have credit disputes during the mortgage process. Medical credit disputes are exempt from retraction. Zero balance non-medical credit disputes are exempt from removal. If the aggregate sum of all non-medical credit disputes is less than $1,000, the credit disputes are exempt from retracting. If the non-medical credit disputes are over 24 months old from the date of last activity, it is exempt from removing the dispute.

The borrower has credit disputes on non-medical credit tradelines with an aggregate balance of $1,000 or more. The borrower has bankruptcy that has not been seasoned for at least 24 months from the case number assignment date.

What are Reasons For FHA Downgrade To Manual Underwriting

FHA downgrade to manual underwriting does not happen with every lender. Just because one mortgage underwriter does an FHA downgrade to manual underwriting does not mean a different lender will do the same. Borrowers who get an approve/eligible but had an income decline of over 20% from the previous year need to be downgraded to a manual underwrite.

When you have poor credit and lower credit scores and get an approve/eligible per automated underwriting system, there should be no reason for an FHA downgrade to manual underwriting. You need to go to an aggressive lender like FHA Bad Credit Lenders for your mortgage loan approval.

Borrowers who have a substantial amounts of collection and charge-off accounts may need to get downgraded to manual underwriting. If the mortgage underwriter decides to downgrade an AUS file to a manual underwrite, the underwriter must follow all manual underwriting guidelines.

What Are The FHA Underwriting Guidelines?

There is not too much difference between automated and manual underwrites. The mortgage underwriter will scrutinize a manual underwrite more so than an AUS-approved borrower. Here are the basic FHA Manual Underwriting Guidelines:

• The minimum credit score for a 3.5% down payment FHA loan is 580 FICO
• Borrowers can qualify for FHA loans with credit scores down to 500 FICO
• However, most lenders do not approve FHA loans under 580 credit scores due to their overlays.

What Is The Lowest Credit Score FHA Will Accept?

FHA Bad Credit Lenders will approve VA and FHA loans with credit scores down to 500 FICO. Verification of rent is required on FHA manual underwriting. FHA Bad Credit Lenders will allow borrowers without rental verification if they have been living rent-free with family. The lender provides the rent-free letter form, which must be completed, signed, and dated.

FHA Bad Credit Lenders has a national reputation of being able to do mortgage loans other lenders cannot do.  FHA Bad Credit Lenders are mortgage brokers licensed in 48 states including Washington, DC, and Puerto Rico. We have a national reputation for being able to qualify and approve borrowers who has a last-minute mortgage loan denial.

The maximum debt-to-income ratio with no compensating factors is 31% front end and 43% back end. Maximum DTI with one compensating factor is 37% front end and 47% back end. Maximum DTI with two compensating factors is 40% front end and 50% back end.

Can I Qualify For a Mortgage While in Chapter 13?

Borrowers can qualify for FHA and VA loans during the Chapter 13 repayment plan.  Chapter 13 Bankruptcy does not need to be discharged. Trustee approval is required. There is no waiting period after Chapter 13 bankruptcy to qualify for FHA and VA loans. However, any discharge after Chapter 13 bankruptcy that has not been seasoned for at least 24 months from the discharge date must be manually underwritten on FHA and VA loans.

The team at FHA Bad Credit Lenders are experts on helping borrowers while they are in an active Chapter 13 Bankruptcy repayment plan. Over 80% of our borrowers are folks who could not qualify at other lenders.

For borrowers needing an FHA and VA loan that need to be manually underwritten, please get in touch with us at FHA Bad Credit Lenders at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The FHA Bad Credit Lenders team is available seven days a week, evenings, weekends, and holidays.