Mortgage application: denied by automated system, now going to manual underwriting?

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I was hoping that somebody experienced in this area might be able to shed some light on things…

My wife and I have had our offer on a home accepted, and we applied on Friday with Wells Fargo for the mortgage.

I calculated my own DTI’s (we are applying for an FHA mortgage because of credit problems) and we fall withing the 29/41. I have some tax debt, collection accounts and an open judgment that are all being satisfied on 12/15. My middle credit score was 557 and my wife’s was 585. The down payment will be 3%, and it will be borrowed from my 401K plan. The seller agreed to a $ 14K seller consession so we could finance the majority of the closing costs.

The sr loan officer told my wife that the “system” didn’t approve it, so it went to manual underwriting today.

We definitely have the income to make the PITI payments and our monthly obligations…so the credit is the concern…

What happens in manual underwriting? any idea what % that go into it get approved?

2 Comments
  1. Reply
    Mary B
    January 25, 2011 at 9:19 am

    I maintain my certification as a Direct Endorsement underwriter…a DE underwriter is authorized by HUD to underwrite FHA and VA loans.

    What caused the loan to fail the automated underwriting is because the credit report itself, the system graded it as having an open judgement.

    Understand that the judgement will have to be paid in full either at closing or prior to, and it’s up to you to get a formal payoff so the closing attorney can make sure it’s taken care of.

    If your LO told you that you can close prior to 12/15 with an open judgement…he’s wrong…FHA won’t allow it.

    Your credit scores don’t matter with FHA…your recent payment history does and if you don’t have the correct number of tradelines, they can use alternative credit such as electric bills, cell phone bills, etc.

    It’s not going to be the debt ratio that is going to hold you back…negative credit is going to have the biggest impact on if you are approved or not, and I wouldn’t be able to answer that without seeing your actual credit report…which you can’t do online.

    An underwriter should not take any longer than 3 business days to underwrite that loan.

  2. Reply
    Carolinahomerates.com
    January 25, 2011 at 9:40 am

    you need to pay the judgment now….or you will close after 12/15

    your DTI might be an issue as most lenders who do manual underwriter only go up to 35% back end

    if the collections are more than 1yr old they may not have to be satisfied but lenders will take in account if the amounts are over 5k collectively.

    you should apply with a broker also as wells fargo just started doing FHA. A broker can find you other lenders who can be more lenient towards your situation.

    although fha has no score requirement….a lot of lenders do impose credit score requirements….most of them dont do lower than 550.

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