Manual Underwrite Freddie Mac

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  1. Manual Underwrite Freddie Mac Online
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If you're lucky enough to have a high credit score, plenty of income, and a healthy down payment, getting a home loan is easy. Lenders can process your loan application relatively quickly if you’re the typical home buyer, and mortgage lenders like for things to be easy. But not everybody lives in that world.

If you have thin credit, bad credit, or complicated earnings, computerized approval programs may be quick to decline your application. But it’s still possible to get approved with manual underwriting. The process is slightly cumbersome, but it's a potential solution for borrowers who don't fit the standard mold.

What Is Manual Underwriting?

Manual underwriting is a manual process (as opposed to an automated process) of evaluating your ability to repay a loan. Lenders assign staff to review your application and other supporting documents that demonstrate your ability to repay the loan (such as bank statements, pay stubs, and more). If the underwriter determines that you can afford to repay the loan, you will be approved.

Manual

All loans must meet Fannie Mae HFA Preferred or Freddie Mac HFA Advantage underwriting guidelines, credit eligibility, Loan to Value (LTV) and appraisal standards. All borrowers’ contributions toward the purchase must meet product. NO manual underwrite DREAM Freddie Mac HFA Advantage LTV - 95.01 to 97%.

Why You Might Need Manual Underwriting

Automated systems are responsible for much of the decision-making when it comes to home loans. If you meet specific criteria, the loan is approved. For example, lenders are looking for credit scores above a certain level. If your score is too low, you’ll be declined. Likewise, lenders typically want to see debt-to-income ratios lower than 31/43. However, “income” may be hard to define, and your lender might not be able to count all of your income.

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Computerized models are designed to work with the majority of borrowers and the loan programs they most often use. These Automated Underwriting Systems (AUS) make it easy for lenders to process numerous loans while ensuring the loans meet guidelines for investors and regulators.

For example, FNMA and FHA loans (among others) require that mortgages fit a particular profile, and most people fit clearly in or outside of the box. Also, lenders might have their own rules (or “overlays”) that are more restrictive than FHA requirements.

If all goes well, the computer spits out an approval. But if anything is amiss, your loan will receive a “Refer” recommendation, somebody will need to review your application outside of the AUS.

What factors might derail your application?

Debt-free lifestyle: The key to high credit scores is a history of borrowing and repaying loans. But some people choose to live without debt for simplicity and significant interest savings. Unfortunately, your credit eventually evaporates along with your interest costs. You don’t necessarily have bad credit—you have no credit profile at all (good or bad). Still, it’s possible to get a loan with no FICO score if you go through manual underwriting. In fact, having no credit or thin credit can be better than having numerous negative items (like bankruptcy or collections) in your credit reports.

New to credit: ​​Building credit takes several years. If you have not yet established a robust credit profile, you may have to choose between waiting to buy and manual underwriting—which may even improve your credit. Adding a home loan to your credit reports can accelerate the process of building credit because you add to the mix of loans in your credit files.

Recent financial problems: Getting a loan after bankruptcy or foreclosure isn’t impossible. Under certain HUD programs, you can get approved within one or two years after bankruptcy without manual underwriting. But manual underwriting provides an additional option for borrowing, especially if your financial difficulties are relatively recent. Getting a conventional loan with a credit score below 640 (or even higher than that) is difficult, but manual underwriting might make it possible.

Low debt-to-income ratios: It’s wise to keep your spending low relative to your income, but in some cases, a higher debt to income ratio makes sense. With manual underwriting, you might get approved with a higher-than-usual ratio. In many cases, that means you have more options available in expensive housing markets. Just beware of stretching too much and buying a costly property that’ll leave you “house poor.”

How to Get Approved

If you don’t have the standard credit rating or income profile to get approved, what factors can help your application? You need to use whatever you have available to show that you’re willing and able to repay the loan. To do so, you genuinely need to be able to afford the loan: You need sufficient income, assets, or other resources to prove that you can handle the payments.

In manual underwriting, somebody scrutinizes your finances, and that process can be frustrating and time-consuming. Before you start, make sure you really need to go through the process—see if you can get approved without manual underwriting. Take an inventory of your finances so that you can discuss the requirements with your lender, and so that you get a head start on gathering the information they need.

History of payments: Be prepared to prove that you’ve been making other payments on-time over the past year. Traditional credit reports show your loan payment history (among other things), but you need to demonstrate the same payment behavior using different sources. Large payments like rent and other housing payments are best, but utilities, memberships, and insurance premiums can also be helpful. Ideally, identify at least four payments that you’ve been making on-time for at least 12 months.

Healthy down payment: A down payment reduces your lender’s risk. It shows that you have skin in the game, minimizes your monthly payment, and gives lenders a buffer. If the lender needs to take your home in foreclosure, they’re less likely to lose money when you make a significant down payment. The more you put down, the better, and 20 percent is often considered a good down payment (although you may be able to do less). With less than 20 percent, you may also have to pay private mortgage insurance (PMI), which only makes things harder for you and your lender.

For tips on funding a down payment, read more about using and saving for a down payment. A healthy down payment can also minimize the amount you pay in interest costs and keep your monthly payment low.

Debt-to-income ratios: Approval is always easier with low ratios. Lenders prefer to see that your income can easily absorb a new monthly payment. That said, you can potentially use manual underwriting to get approved with high ratios—possibly as high as 40/50, depending on your credit and other factors.

Government loan programs: Your chances of approval are best with government loan programs. For example, FHA, VA, and USDA loans are less risky for lenders. Remember that not all lenders offer manual underwriting, so you may need to shop around for a loan originator that does. Your lender also needs to workwith the specific government program you’re looking at. If you get a “no,” there might be somebody else out there.

Cash reserves: A significant down payment may drain your bank account, and it’s wise to have extra reserves on hand. Reserves can also help you get approved. Lenders want to be comfortable that you can absorb minor surprises like a failing water heater or unexpected out-of-pocket medical expenses.

Compensating Factors

“Compensating factors” make your application more attractive, and they might be required for approval. These are specific guidelines defined by lenders or loan programs, and each one you meet improves your chances. The tips above should work in your favor, and specifics for FHA manual underwriting are listed below.

Depending on your credit score and debt-to-income ratios, you might need to satisfy one or more of these requirements for FHA approval.

  • Reserves: Liquid assets that can cover your mortgage payments for at least three months. If you’re buying a larger property (three to four units), you may need enough for six months. ​Money you receive as a gift or loan cannot be counted as reserves.
  • Experience: Your payment (if approved) cannot exceed your current housing expense by the lesser of 5 percent or $100. The goal is to avoid dramatic increases (“payment shock”) or a monthly payment that you’re not accustomed to.
  • No discretionary debt: If you pay off your credit cards in full, you’re not really in debt—but you’ve had the opportunity to rack up debt if you wanted to. Unfortunately, a completely debt-free lifestyle does not help you here.
  • Additional income: In some cases, automated underwriting ignores overtime, seasonal earnings, and other items as part of your income. But with manual underwriting, you might be able to use that extra income (as long as you can document the income and can expect it to continue).
  • Other factors: Depending on your loan, other factors might be helpful. In general, the idea is to show that the loan will not be a burden and that you can afford to repay. Stability in your job never hurts, and more reserves than required can also make a difference.

Tips for the Process

Plan for a slow and time-consuming process. An actual person needs to go through each document you provide and determine whether or not you qualify for the loan. Unfortunately, that takes time.

Lots of paperwork: Getting a mortgage always requires documentation. Manual underwriting requires even more. Expect to dig up every imaginable financial document, and keep copies of everything you submit in case you need to re-submit. You need the typical paystubs and bank statements, but you may also need to write or provide letters that explain your situation and help your underwriter verify the facts.

Homebuying process: If you’re making an offer, build in plenty of time for underwriting before closing. Include a financing contingency so that you can get your earnest money back if your lender denies your application. Your real estate agent can explain your options to you and can provide suggestions on how to present your offer. Especially in hot markets, you may be less attractive as a buyer if you require manual underwriting.

Explore alternatives: If manual underwriting does is not successful for you, there may be other ways to get housing. Hard money lenders might be a temporary solution while you build credit or wait for negative items to fall off your credit report. A private lender, co-borrower, or cosigner (when chosen responsibly) might also be an option. Finally, you may decide that it just makes more sense to rent until you can get approved.

Article Table of Contents Skip to section
  • What Is Manual Underwriting?
  • How to Get Approved
  • Tips for the Process

What Is The Difference Between Fannie Mae And Freddie Mac

This BLOG On What Is The Difference Between Fannie Mae And Freddie Mac Was UPDATED On May 20th, 2018d

The two mortgage giants that is responsible of purchasing conforming loans are the following:

  1. Fannie Mae
  2. Freddie Mac

Manual Underwrite Freddie Mac Online

Fannie Mae and Freddie Mac are called government sponsored enterprises (GSE) and are regulated by the Federal Finance Housing Agency (FHFA).

Majority of mortgage lenders are Fannie Mae mortgage lenders.

  • Chances are when borrowers apply for mortgage, lender, particular mortgage lender will submit file to Fannie Mae
  • More than 90% of all lenders use Fannie Mae when running conventional loans
  • Fannie Mae and Freddie Mac are the two giant government sponsored mortgage companies
  • Their role is to purchase mortgage loans are originated and funded by banks, credit unions, and mortgage companies in the United States
  • Fannie Mae has different mortgage guidelines than Freddie Mac
  • Freddie Mac has different lending guidelines than Fannie Mae
  • If a lender cannot get an automated approval from DU, DESKTOP UNDERWRITER, which is Fannie Mae, the lender can submit it to LP, LOAN PROSPECTOR, Freddie Mac’s AUS
  • May get an automated approval per Freddie Mac’s automated underwriting system, LP FINDINGS
  • Not all lenders do both Fannie Mae and Freddie Mac
  • Most lenders can only underwrite Fannie Mae loans and not Freddie Mac
  • I am able to do both, Fannie Mae and Freddie Mac mortgage loans
  • So if I cannot get an approve/eligible per DU FINDINGS, I can run it through LP and see if I can get an approve/eligible per LP FINDINGS
  • There is a difference between Fannie Mae and Freddie Mac lending guidelines

Difference Between Fannie Mae And Freddie Mac

There are times where I expect an approve/eligible per DU FINDINGS, FANNIE MAE APPROVE/ELIGIBLE PER AUTOMATED UNDERWRITING SYSTEM. But for whatever reason cannot get an approve/eligible per FANNIE MAE, If I get a referred/eligible per DU FINDINGS, prior to taking file through manual underwriting, I submit it to Freddie Mac’s Automated Underwriting System, LOAN PROSPECTOR ( LP ). Surprising I can sometimes get an approve/eligible per LP FINDINGS

  • Countless of times I have run into situations where I get a denial with Fannie Mae but get approved with Freddie Mac
  • There is a difference between Fannie Mae ad Freddie Mac automated underwriting system
  • Many times, Fannie Mae has difficulty with accepting borrowers getting a gift
  • Fannie Mae does not like gift funds
  • Especially from mortgage loan applicants with lower credit scores, higher debt to income ratios and limited credit trade lines on their credit report
  • Freddie Mac is not as picky with regards to gift funds like Fannie Mae
  • Many times when borrowers gets denied by Fannie Mae, they may get approved with Freddie Mac
  • Fannie Mae may turn down a mortgage application with errors on the credit reportt
  • But Freddie Mac may approve that file turned down by Fannie Mae

Pros And Cons On Fannie Mae And Freddie Mac

Freddie Mac is more lenient with mortgage loan applicants with poor credit history and lower credit scores.

  • Freddie Mac is also more lax on higher debt to income ratios
  • This is so especially those mortgage loan applicant’s with debt to income ratios as high as 50% DTI
  • Freddie Mac is also more aggressive and understanding on mortgage applicant’s who has limited credit trade lines and credit history
  • Fannie Mae likes to see a minimum of 3 aged credit trade lines
  • If the mortgage loan applicant has less than 3 credit trade lines and cannot get an approve/eligible per DU FINDINGS, I suggest the loan officer to submit to Freddie Mac

Credit Report And Automated Underwriting System

Fannie Mae does not recognize errors on a consumer’s credit report like Freddie Mac does.

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  • For example, say a mortgage loan applicant filed bankruptcy
    • The bankruptcy was discharged 2 years ago
    • All of the creditors were part of his or her bankruptcy
    • But one of the credit trade lines that was included in the bankruptcy is still reporting as active
  • Fannie Mae may deny mortgage application with this error but Freddie Mac may approve it

FHA Lending Guidelines And Automated Approval

Manual Underwrite Freddie Machine

Fannie Mae and Freddie Mac lending guidelines differs than FHA loans. With FHA Home Loans, Underwriters need to follow the FHA TOTAL SCORE CARD, which are FHA lending guidelines. The main difference between Fannie Mae and Freddie Mac is how Fannie Mae automated underwriting system interprets a mortgage loan application versus how Freddie Mac’s Automated Underwriting System interprets it. When choosing a lender, make sure that the particular mortgage lender you choose is able to do both Fannie Mae and Freddie Mac mortgage loans. Snow mac 522 owners manual gas.