What Happens if Your USDA Loan Approval is Downgraded?

What Happens If a USDA Loan Approval is Downgraded? 

USDA qualifying guidelines can be flexible, but also complicated. This week’s post will explain how to keep your loan on track in cases where your automated approval is downgraded and requires a more stringent review with manual underwriting.

What Does a USDA Loan Approval Downgrade Mean? 

With USDA loans, files are submitted initially through the Guaranteed Underwriting System, also known as GUS. The ideal result would be classified as an “Accept” and allow for streamlined processing and reduced documentation.

However, there are cases when an “Accept” eligibility response must be reviewed and manually downgraded to a “Refer” which would require manual underwriting.

Here are two examples to help illustrate:

• In a situation where the potential applicant has open authorized user accounts and does not meet the required guidelines, an accept would be downgraded to a refer.
• Or in a case where there are disputed tradelines listed on the credit report. This could be another reason for an underwriting downgrade if the qualifying criteria are not met.

Downgrading a loan approval does not mean the end of the road or an automatic denial. However, this will require the additional steps needed that come with manually underwriting a loan file.

Not all lenders offer manual underwriting, so be certain that your mortgage professional is experienced with all aspects of the USDA loan process in order to help navigate this complex loan program.