What you need to know about AUS
AUS is simply the acronym for Automated Underwriting System. Still with me? More commonly known in the real estate world as "DU", AUS is the program that issues automated loan approvals or rejections when a borrower's personal information is input.
All AUS systems use algorithms that analyze things like borrower's total credit profile, their income, debt to income ratio, job history, asset reserves, and more. AUS comes in some different shapes and sizes -
DU, or desktop underwriter, is Fannie Maes version and by far the most commonly used. DU is capable of underwriting conventional, FHA, and VA loan types, and also lets a lender know what documentation they'll need to ensure Fannie Mae accepts their loan package (if there are requests beyond what's on DU, these are the "overlays" you so commontly hear about)
LP is Freddie Macs version of DU. Freddie Mac has similar guidelines to Fannie Mae with some slight differences in the algorithms used to determine approvals. For example, Freddie Mac allows asset reserves to compensate for more shortcomings than DU, and there's no hard stop for derogatory credit events (it's possible to get an approval with Freddie Mac with foreclosure, bankruptcy, etc, recently reporting, but notwithstanding the event, the file needs to be extremely strong).
GUS is the USDA version of AUS. GUS determines if borrowers are eligible for guidelines under the agricultural/rural development loan program.
If a loan fits within agency guidelines and does NOT get an approval through AUS, it doesn't necessarily mean the loan can't be done. Conventional AND government loans can be 'manually' underwritten. Each year, many loans are declined in AUS and still approved through manual underwriting, but unfortunately, many lenders don't offer manual underwriting (we do manual underwriting on government products - FHA, VA, USDA). If you're a real estate agent, you should ensure you have a lender on your team that does manual underwriting - it can net you an extra buyer or 2 each year.
Why should an agent ask a lender if AUS was run?
Just last week a borrower was referred to me after being pre-approved by another lender. They didn't meet the manual underwriting requirements, and AUS was declining the loan. I informed the referring agent and had her ask the other lender if they ran AUS. Of course they didn't! Had she not asked, there would have been a lot of wasted time looking at homes, putting in offers, and placing deposits (or worse, spending money on inspections/appraisal), only to be denied once the loan hit underwriting. That's bad business - for buyers, for sellers, and for their agents.
It's important to know not every lender runs AUS before issuing a preapproval! They all should! But they don't. Just like they don't all look at income documents and asset statements, even though they should.
Why SHOULDN'T an agent ask for a copy of AUS/DU?
2 reasons - for one, most AUS systems, in their fine print contract agreements, prohibit a lender from sharing the findings. Most lenders don't realize this and blindly send over the findings to any listing agent asking. They don't realize they're jeopardizing their ability to have access to AUS by doing this.
And more importantly, it's a garbage-in, garbage-out system. What that means is if you want an approval, I can give you an AUS approval. All I have to do is fudge a few numbers, input something incorrectly, or put income in the wrong box in my origination software, and VOILA! Approved!
An agent won't know any better, not because they're dumb, but because the system is designed for lenders - more specifically, lenders that know the guidelines, any overlays, etc. So just by seeing an AUS approval, you don't know if the loan is going to close or not. Seeing an AUS denial also doesn't mean the borrower isn't qualified and couldn't get a loan quickly and with no stress. For example, I've had manually underwritten FHA loans FLY through the system and close in 2 weeks, and I've had super clean looking (on the surface) loans with AUS approvals run into snags along the way. AUS is not indicative of the strength of a borrower. It's a lender tool to determine how to underwrite a file - no more, no less.
Want a lender on your team that knows the ins and outs of AUS, the manual underwriting guidelines, and doesn't have overlays on conventional, FHA, VA, or USDA loans? Best of all, a lender that gives buyers a preapproval that really means something? If you're in CA, CO, DE, FL, GA, MD, NC, NJ, PA, TN, TX, or VA, give me a call at 484.680.4852 or email firstname.lastname@example.org. I'd love to talk with you.