What is the Difference Between Automated and Manual Underwriting for USDA Loans?
What is the difference between automated and manual underwriting for USDA loans? Have you heard these terms, but maybe not sure how they can help? With tighter underwriting guidelines, this is critical for all to know.
As a reminder:
- Credit scores alone do not guarantee any type of approval
- Credit score requirements are subject to change without notice
- Minimum credit conditions will apply for all loans
In most cases, loan files are initially submitted through the Guaranteed Underwriting System (otherwise known as GUS). GUS is an automated system designed to help lenders process and determine eligibility for USDA Rural Development Single Family Housing loans. Once the file is processed through GUS, the file is given a recommended level of eligibility of accept, refer or refer with caution.
Files that receive an “Accept” response will get an automated approval and do not have to be downgraded for any reason such as Authorized User Accounts, Disputed Trade Lines, etc.
Automated USDA Loan Approvals:
Automated approvals require a borrower to have a current minimum credit score starting at 640. An automated approval will give the borrower the ability to qualify for a reduced documentation loan file which can help improve processing time. Automated approvals also extend more flexibility for:
- Debt ratios
- Previous negative (adverse) credit
- Verification of Rental History
When the GUS Eligibility response is either a “Refer” or “Refer with Caution”, a more stringent review of the loan file will be required under USDA manual underwriting guidelines.
Manual Underwriting for USDA Loans:
Although manual underwriting maybe more thorough and difficult, it does offer many benefits. Currently, we are able to work with credit scores down to 620 this is great for borrowers with lower credit scores. Zero Score buyers who truly have no credit standing can benefit from the manual underwritings’ flexibility. In these cases, we will need to verify rental history through cancelled checks, or alternative credit such as phone, cable, water bills, or a combination. Manual underwriting does allow for exceptions for recent bankruptcies, short sales, and foreclosures. Please keep in mind; any exceptions are case by case based on the circumstances surrounding the situation.
Please note that Manual Underwriting for USDA loans is NOT offered by all lenders. When needed, this is an important tool which can provide the ability to approve a loan that would normally have been denied.
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