A homebuyer must go through many steps in order to finalize and close the sale. Securing a loan is imperative unless you plan to pay the full amount in cash. After you have been pre-approved for a loan, your lender will have its team of underwriters assess the financial risks associated with providing a loan to you.
Underwriting is the process of approving or denying a loan based upon the homebuyer's financial information and credit history. During this process, your lender's underwriters will assess and verify all of the information provided in your loan application, such as your employment status and income. Underwriters will also assess the appraisal price of the property to assure that the property's actual value compares favorably to the loan you are requesting.
Automatic Underwriting Systems
There are two primary types of underwriting systems: automatic and manual. In an automatic underwriting system, or AUS, the application information is entered into a computer program. This program determines whether the homebuyer is financially fit for the loan based on factors such as credit history. If the loan is approved initially through an automatic system, the lenders will proceed with the loan. If it is not approved, it may be eligible for a manual underwrite.
Manual Underwriting Systems
A manual underwriting system consists of the arrangements made by a lender to have an underwrite conducted manually by a qualified person rather than by a computer system. A lender may have an in-house underwriter or may outsource the function to professional underwriting services. Manual underwriting is utilized primarily as a result of a loan application being denied by an AUS. The purpose of a manual underwriter is the same as an AUS, which is to determine the risk of providing you with a loan. The main benefit of a manual underwriting system is that it enables the underwriter to consider factors not considered by an AUS.
Why You Might Need a Manual Underwrite
Several factors may result in a rejected loan application through an AUS. If you have a lack of credit history, your application may be automatically rejected. In a manual underwriting, the underwriter may evaluate any credit history you have to determine your credit habits. Another factor which will make you ineligible for approval through an AUS is a foreclosure or short sale, yet you may be approved through a manual underwrite if you can provide substantial evidence that your credit has been re-established and you are now financially fit to buy a home.
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