How Automated Underwriting Works

How Conventional Automated Underwriting Decisions Work

What is Automated Underwriting (AUS)?

Automated underwriting (also known as AUS) is used by mortgage lenders to determine whether or not to approve your mortgage application. These automated, computer-generated mortgage loan underwriting decisions are the most common way to get approved for a home mortgage.

Automatic Underwriting System

Information from a mortgage loan application (Fannie Mae form 1003) is uploaded to an automated underwriting system (AUS) which retrieves relevant data, such as a borrower’s credit history, and arrives at a logic-based loan decision.

Automated underwriting engines can provide a near-instantaneous loan approval or denial decisions based on the information submitted to the system.

Implementing automated underwriting systems save home mortgage lending professionals a considerable amount of time, as doing the same process manually (called manual underwriting) can take as long as 60 days to complete.

In addition to the time savings, automated underwriting is preferred because it is based on algorithms, eliminating human bias.

The most frequently-used AUS (automated underwriting system) programs in the U.S. mortgage industry include:

Fannie Mae – Desktop Underwriter (DU)

The Federal National Mortgage Association (FNMA) is also known as Fannie Mae.  Fannie Mae’s mission is to create minimum lending standards, and liquidity in the mortgage lending community by buying mortgage-backed securities to free up capital for lenders to then turn around and lend again.

To create consistency in the quality of home mortgages, Fannie Mae has developed a set of underwriting guideline standards that guide lenders on how to best assess risk, so that the opportunity for default is reduced to a predictable level.

The industry standard in mortgage underwriting is managed through Fannie Mae’s automated underwriting system (AUS) called Desktop Underwriter (DU).

Freddie Mac – Loan Product Advisor (LPA)

The Federal Home Loan Mortgage Loan Corporation, more commonly known as Freddie Mac, offers an alternative to Fannie Mae’s automated underwriting system (AUS) called Loan Product Advisor since 2016 (previously it was known as Loan Prospector (LP).)

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Loan Prospector follows many of Fannie Mae’s underwriting standards, with distinct differences that would allow experienced and educated lending professionals to place a loan application into the automated underwriting system that would provide the best chance of approval.

Similar to Fannie Mae’s DU, Freddie Mace’s LP is an algorithm-based automated underwriting system, with minor differences in the way that risk is analyzed and assessed.

Should I use Fannie Mae or Freddie Mac?

It’s much easier today, and common practice to run “dual AUS” when you submit your loan application.  This is just a fancy way to say that it’s run through both Fannie Mae’s DU and Freddie Mac’s AUS to see if one offers better terms, like an appraisal waiver.

The most common differences between Fannie Mae and Freddie Mac’s automated underwriting systems tend to be in the areas of income and employment analysis and documentation, among other risk assessment nuances.

For instance, Freddie Mac allows non-occupying co-signers, similar to FHA-insured loans, while Fannie Mae does not allow you to use the income from a co-signer not living in the home to help qualify.

Another common difference between Fannie Mae and Freddie Mac is around employment and income verification.  Fannie Mae’s minimum employment and income standards require a 2-year history, with variable income, such as overtime, bonuses, and commission averaged over 24 months.  Freddie Mac will, in some cases, only require a 1-year look-back of employment and income.

This subtle difference comes in very handy if you are self-employed, and made significantly more income in the most recent tax year, compared to the prior tax year.  Fannie Mae would require that this income be averaged over 2 years, while Freddie Mac may allow you to only use the most recent year for qualifying.

Fannie Mae has stepped up as the leader in providing loan options for boomerang buyers purchasing after a bankruptcy, short sale, foreclosure or deed in lieu of foreclosure.

Not a Loan Approval?

An automated underwriting decision is only the first step when applying for a home mortgage loan.  Because DU is an algorithm-based computer program, it can be easily manipulated, or influenced by the information that you put into the system, and on your loan application.

Many lenders will require that you provide the documentation required to back up all of the information on a loan application.  Some lenders are willing to provide you with a loan approval without documenting all of the information submitted to the underwriting system.

In either case, you must provide documentation to back up, validate, or otherwise verify all of the information that is required for a mortgage loan application, or you do not really have an approval.

An automated underwriting approval is only as accurate as the information input into the system, and will only be as reliable as the documentation provided to support the information on your loan application.

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Underwriting Documentation Requirements

Qualifying documentation requirements are pretty standardized throughout the industry, and apply to Fannie Mae, Freddie Mac, FHA and other automated underwriting approvals.

  • Name, birthdate, social security number
  • 2-year residence history
  • 2-year employment history
  • 2 years income documentation (W2’s or Tax Returns)
  • Pay stubs covering the last 30 days for all borrowers
  • Asset statements covering the last 60 days
  • Source of all funds needed to close (assets, assistance, gifts, credits)

Manual Underwriting and Extenuating Circumstances

What happens if you cannot get an automated underwriting approval?  Assuming that the lender input all of the data accurately, the automated decision will be pretty clear as to what factors it determined to be too risky to produce an Approve/Eligible decision.  This guidance can be used to determine the best course of action for receiving an approval.

Sometimes you will get an automated approval based on your lender being able to explain certain things about your application.  This is very common when there is a financial hardship in the past including bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure.

False approvals can happen when your loan officer inputs information that cannot be documented.  On the other hand, False denials can also happen when your loan officer inputs inaccurate, or incomplete information into the automated underwriting system.

In some cases, there are extenuating circumstances that will allow exceptions to standard underwriting guidelines that will allow your loan officer to “document” your way out of what would otherwise be a loan denial.

Manual underwriting is very rare when using Fannie Mae or Freddie Mac underwriting guidelines, and is not offered by many lenders.  However, FHA insured financing offers automated, and manual underwriting alternatives to conventional loan challenges that simply cannot pass Fannie or Freddie scrutiny.

Frequently Asked Questions

Can Underwriters Make Exceptions?

Great question! Mortgage underwriters have some freedom to make exceptions in approving a mortgage application. This usually happens when someone is just outside of the requirements for one criterion, but there are other criteria that show enough strength to override those weaknesses. For example, if your debt-to-income ratio is a few percentage points too high, but everything else looks good and your credit score is significantly higher than required, they may want to grant you an exception. 

Exceptions oftentimes require manager approval and are specifically considered during compliance reviews.

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Underwriting exceptions usually require an underwriter to not use the faster and simpler automatic underwriting systems and to do a manual underwriting of your loan, a process that requires significantly more work and that takes much longer. As a result, many lenders won’t do manual underwriting. 

If you’ve been turned down for a mortgage, it may be because your loan was just outside of the requirements for approval using automated underwriting and that lender was not willing to spend the time and effort to manually underwrite your loan. That’s why we recommend you talk with us if you’ve been turned down for a loan.  

What is Desktop Underwriting / What is DU in the Mortgage World?

Desktop Underwriting (DU) is the process a mortgage underwriter who uses Fannie Mae’s Desktop Underwriter (DU) program uses to automatically determine whether you are qualified for a mortgage loan. Fannie Mae’s Desktop Underwriter uses the standard mortgage application form (Form 1033) and accesses information from 75 different sources to determine whether the lender should approve a mortgage loan application.

What is AUS in Mortgage?

The term AUS in the mortgage world is the process of using an automated underwriting system (abbreviated as an AUS) to analyze a person’s financial standing to determine whether they should be approved to receive a mortgage. AUS systems have the advantage of cutting the time and effort required to make that determination significantly, with the disadvantage of being less flexible in allowing the underwriter to make exceptions and use their judgment in the process.

About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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  • Jake says:

    Hi Scott,

    I stumbled across this article while looking for information about DU and LPA. I am trying to pivot into a career in mortgage underwriting, from working in retail banking, and was hoping to somehow get some experience with DU and LPA. Do you know of any way I could do so? Any contacts I could reach out to and maybe even virtually show me the systems? Thanks!

  • Sam K says:

    Hello! I wanted a few questions regarding my mortgage application. We are buying a home for $930K and are putting down $530K (conventional financing of $400K). Question arises with income and DTI. I have two jobs: Job 1 I have had for 3 years with salary of $89K and Job 2 I’ve had for 6 months with salary of $100K (before job 2 I worked elsewhere with the same salary). Total number of months for my second job have been 23 months W2. Before that I was an LLC contractor for a year. So I’ve worked 2 jobs for 3 years but one of them as w2 for 23 months. My loan officer asked the underwriter before my application and the underwriter said they would be okay with both incomes. BUT now that I applied and it’s gone to underwriting, my loan officer said it’s still under the discretion of the underwriter to use both jobs. So the first question is – will the underwriter use both since they signaled before that they would?
    Second question is that in a worse case scenario, if they only used my job I’ve had for 3 years at 89K, my front end DTI is coming out to 35%. My backend would be around 40%. Question here is would they approve even if the front end DTI is greater than 28%? I’m putting down a big down payment and my credit is higher than 700.

    Apologies for the long winded questions and thanks for your time!

    • Hi Sam,

      That’s not a long-winded question! That’s actually a very good question. If you have a 2 year history of having 2 jobs, you should be able to use the income for both jobs. If not, the DTI you stated is more than enough to qualify for conventional financing.

      Conventional financing typically does not use a front end DTI, only a total DTI, which includes your housing payment as well as all of the liabilities that show up on your credit report. If your DTI is under 45%, you’re ok. If your credit score is higher than 700, and you are putting $530k down, conventional underwriting should allow up to 50%.

      If the underwriter cannot get an approval for some reason, have them try to run it using Freddie Mac underwriting guidelines. LPA is the automated underwriting system for Freddie Mac.

      Unless you forgot to include something, I don’t think you have a lot to worry about. If you do have issues, shoot me an email to and I can introduce you to someone I know and trust for a second opinion.

      Hope this helps?

  • Colleen Samuelson says:

    Does your balance (or lack of much of one) in your checking and savings account impact your approval through DU software? My daughter is a first time home buyer and has been putting every extra penny to pay credit card debt and increase her credit score?

    • Hi Colleen, thank you for this very relevant and important question! DU will look for reserves (savings) when assessing the risk of the overall file. If reserves are required to come back with an approval, it will tell you. If you are applying for a conventional loan, it’s a good idea to have 2 months of principal, interest, taxes and insurance payments in a checking, savings, or some other liquid account (stocks and some 401k’s qualify as reserves also).

      Now, what your daughter is doing now is the absolute BEST thing she can be doing. High balances on revolving credit cards are the number one enemy of high credit scores. I have seen one maxed-out credit card drop a credit score over 50 points!

      Increasing her credit score will lower her interest rate, which will in turn either lower her monthly payments or allow her to buy in a higher price range with a more affordable payment.

      Hope this helps?

  • Nancy says:

    Hello Scott,
    We are in the process of buying a home; loan type FHA. Our median score is 638. Loan officer stated our file is textbook and stated we should not have any issues. Unfortunately the DU denied us because we were 30 days late on our mortgage 11/18,12/18 & 1/19. What guideline is implemented in auto underwriting that would deny us: the one late in twelve months or something else?

    • Hi Nancy,

      There are no hard and fast rules for what DU will approve and what it will not. In my experience, I would say that the 30-day lates (technically 2 in the past 12 months) is the reason for your denial. Depending on your timeline, waiting until February 1st to run DU would probably result in an approval.

      Another option I would look at is reserves. I’ve seen scenarios where if you have several months reserves in a checking, savings or retirement account, you can compensate for other detrimental factors.

      Also, I would be happy to introduce you to someone that I know and trust for second opinion. When it comes to DU, input equals output. If your loan officer is not very experienced, it’s possible they were sloppy putting together the application which could have contributed (like not adding or testing reserves as a compensating factor).

      If you would like a second opinion, just shoot me an email to and let me know what State you live in?

      Hope this helps?

  • Lisa says:

    Hi Scott,

    Because of job loss my husband & I filed chapter 13 & it included a foreclosure on our home. It was discharged in January, 2017. When would we be eligible for a conventional home loan and what will be our required down payment? We live in Ohio. Thank you!

    • Hi Lisa, the waiting period and down payment will depend on the type of financing you’re using to buy the new home.

      A conventional loan is going to require a 2 year waiting period from the discharge date of the BK13. If the foreclosure took place AFTER the BK filing, you can ignore the foreclosure date. If the home foreclosed first, then you filed BK13, there is a 7 year wait for the foreclosure.

      A FHA loan is 1 year from the BK13 discharge, and 3 years from the foreclosure.

      It is possible to shorten the conventional waiting periods if you can meet extenuating circumstances exception guidelines, which, from the sounds of it, you might have a good change of meeting.

      I have an AMAZING loan officer friend that can help in OH. She has a LOT of experience with these guidelines, and can definitely narrow this down to an exact eligibility date and down payment.

      Once you meet the waiting period requirements, there are no additional restrictions, like a larger down payment. A FHA loan is going to require a 3.5% down payment. Conventional will require between 3% and 5% depending on your income.

      If you would like an introduction to Mia, shoot me an email to and I can connect you.

      Hope this helps?

  • Rodrigo says:

    Hi, Scott.
    My wife and I signed BK 7 on December 2012, we included a property that was not our primary residence, that property was foreclosure on June 2015. Now we would like to buy another property as investment or refinance our primary residence and get cash.
    Can we get a conventional loan right now? we know we can get a FHA loan but we want conventional better.
    we have 720 scores and more 105 k yearly. No debts.
    someone told me we can show that property was include in BK and the lender took long time to foreclosure and for that reason we apply for BK period not for Foreclosure period.

    • Hi Rodrigo,
      You could only use Conventional to buy an investment property, and you would be eligible to use conventional for either right now. Using Fannie Mae guidelines, there is a 4 year waiting period from the date of the BK discharge, you can ignore the foreclosure.

      Not many lenders know these guidelines. If you would like an introduction to a loan officer friend of mine that has experience with this type of scenario, shoot me an email to and let me know what State you’re trying to buy in.

      Hope this helps?