DU loan approval What is a DU loan approval?

DU stands for Desktop Underwriter, an acronym for Fannie Mae’s  Automated Desk Top Underwriting System. The DU system reviews your  loan and determines if the loan meets Fannie Mae guidelines. If loan meets  requirements, it’s also likely that another mortgage purchaser such as Chase  Bank, Wells Fargo, or Stearns might also be interested in your loan package.

Desktop Underwriting has become the industry standard, not only, for Fannie Mae conforming mortgages but has become the standard barometer for government insured mortgage loans. DU loan approval is also useful when trying to prequalify for nonconforming or subprime loans. This system even establishes degrees of eligibility; Alt A category, and AE or Approved Eligible 1, 2, and 3 categories.

How DU Loan Approval works.

It’s artificially intelligent algorithm interprets loan purchaser guidelines as provided to DU system. Then A loan officer, processor, and an underwriter will verify the information a borrower provided to ensure DU loan approval findings are correct and loan will be approved.

Most FHA loans are underwritten DU Loan Approval software and results are much more liberal than an actual underwriter would approve manually. If an FHA loan is manually underwritten, most underwriters and/or lenders require the total back end debt ratio to be under 43%. DU can approve and FHA borrower with debt ratios as high as 56%.

Example A: A borrower was recently approved by DU with a debt ratio of 53%, a 580 credit score, a$5,000 seller credit, and 100% of the down payment was a gift. The client only had $84 in their checking account. This sounds like a loan that may not be possible. However, with DU approval and the loan officer could verify the information and now has a good FHA borrower.

Example B: A VA loan was approved with a 60% DTI through DU. The VA takes residual income and some other factors into their approval calculations, as this particular client had some assets in the bank and a good credit score; but 60% of your total income was the client’s total debt to income ratio after adding the proposed mortgage. Through normal underwriting channels this loan would not have been approved.

Again, a loan officer still has to verify the information entered into Desktop Underwriting program, on its own, is just a piece of paper. However, if you can verify the information provided to obtain the DU loan approval, you should feel confident that you have sound loan approval.

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