I know that as a lender, I always want an accept/eligible (Fannie Mae) or an accept/accept (Freddie Mac) when I submit an FHA borrower for automated (AUS) decision, but that doesn't always happen. So, here are some things to remember about your clients that have to have a manual underwrite:
- Ratios above 31/43 will cause you problems. Look for a great compensating factor. AUS may give you a 50% approval.
- Be prepared to explain any gap in employment of more than one month. AUS, 6 months without explanation.
- Major derogatory credit requires a written explanation. Again, not so with AUS.
- Consumer Credit Counseling is treated like a Chapter 13 BKO and requires proof of timely payments and permission of the CCCs agency. Not so with AUS, considered part of overall score.
- Must provide a 12 month rental rating through the credit agency, verification of rents or 12 month cancelled checks.
- Self employed borrowers must provide 2 years federal tax returns for the business in addition to the personal returns. Most often these are not required with an AUS approval, there are exceptions.
- Profit and loss for the business if more than 7 months into the business year.
- Business Credit report if C corp, LLC or S corp.
- Three months statements (not 2) from stock or bond account if that is the source of cash to close.
- Alimony or child support must have been received for past 12 months to be considered stable. AUS only requires 3 months.
- If reserves (PITI after closing) are used as a compensating factor, they must be the borrower's own funds, not a gift. AUS accepts gift funds for reserves to increase the likelyhood of a Total Scorecard approval.
More and more, FHA is going to be the loan of choice for many buyers. Make sure you are using a lender that understands the program.
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