PriceIncomeAssetsEmployment BackgroundDebt
These inputs are used to calculate whether a borrower meets the standards for a certain loan. If the requirements are met, it will issue an automated approval. Desktop Underwriter sets the industry standard in underwriting mortgages. Since it’s automated, it allows loan originators to make decisions using logic and algorithms. It removes factors such as race, gender, or other prohibited matters. If you can’t get an automated approval through Desktop Underwriter, you may need manual underwriting to secure your loan. Alternate name: Desktop Originator (used by sponsored mortgage brokers to access Desktop Underwriter) Acronym: DU (or DO)
How Does Desktop Underwriting Work?
Mortgage loan originators ask borrowers to complete a loan application, commonly referred to as a Form 1003 (said as form “ten-oh-three”). Some questions you can expect to see on a Form 1003 include:
Type of mortgage and terms of the loanProperty address and purpose of the loanBorrower informationEmployment informationMonthly incomeAssetsReal estate ownedLiabilitiesDetails of transactionDeclarations
The inputs in DU align with these sections of Form 1003. The program then uses this information, plus data from more than 75 third-party vendors, to decide if you meet the risk standard for approval. DU is only as good as what you put into the program. Wrong or missing information can damage your chances of approval. Also, DU does not address whether a loan complies with federal regulations. That part is up to the lender.
What Does Desktop Underwriting Cover?
Two major pieces of the approval process are your credit score and your debts. These play into whether you can be trusted to pay back what you borrow in a timely fashion. Here’s how that works:
FICO Scores
Your credit score, or FICO score, will be part of the mix. However, you don’t need to go online and buy your FICO score report. DU uses third-party vendors, such as credit reporting companies, to collect this data. FHA has lower requirements for FICO scores than do conventional loans that are sold to Fannie Mae. Better FICO scores tend to draw lower interest rates and more favorable lending terms. Lower FICO scores often result in higher interest rates.
Debt-To-Income Ratios
Lenders want to see how much debt you have as a percentage of your income. This tells them how much money you have free on a monthly basis to pay your mortgage. Your debt-to-income ratio is reported as both front-end and back-end. The front-end ratios include the entire mortgage payment as a percentage of gross monthly income. The PITI mortgage payment (principal, interest, taxes, and insurance) can also include private mortgage insurance or mutual mortgage insurance. Add on a monthly HOA fee if the home is part of a homeowners association. The back-end ratio takes all your debts into account. This includes the total housing payment and all revolving debt payments as reported to the credit bureaus. If you have debt, such as student loans or credit card debt, this ratio will be much higher than the front-end ratio. The lower the percentage, the better you appear as a candidate for a loan. If the ratio is too high, you are unlikely to be approved.
Do I Need Desktop Underwriting?
For many homebuyers, being approved by DU is a critical part of the home-buying process. Most people cannot afford to buy a home outright and will need a loan to make the purchase. Being approved by a mortgage underwriter is a critical step in that process. Once your information is submitted into the DU, it will issue an automatic approval or denial. It will also indicate what documents are necessary to verify the inputs. Once the mortgage underwriter has those, the DU can be submitted again. Before the loan can close, the DU will list several conditions that must be met. Once those are met, the loan is cleared to close. For buyers in hot real estate markets, having a DU approval in hand can provide a competitive edge. It carries more clout than a pre-approval letter and gives the seller more comfort that you can borrow the needed amount to move forward with the sale.
