Most FHA loans are run through an automated underwriting system(AUS)which can approve an FHA loan at higher debt ratios than what is set by FHA at 31/43.The FHA automated system will look at compensating factors and determine a risk level for the borrower based on those factors. The main factors these systems use to determine elegibility are the amount of cash reserves you have in retirement or bank accounts, overall credit profile, job time and debt to income ratios. While their certainly are more factors that these systems use those are the major ones.
While not entirely accurate the automated system will sometimes for unknown reasons deny otherwise acceptable loans. It is at this point that the loan needs to be submitted for a manual underwrite.
With automated underwriting, a seasoned mortgage professional can submit your file with slight variations in order to obtain an approval for your loan. A variation may be a slightly larger down payment, a lower interest rate with a larger rate buydown, or even more asset reserves you can obtain/save prior to closing.
Total Scorecard is FHA’s automated underwriting tool hosted by Freddie Mac and Fannie Mae. FHA’s Total Scorecard evaluates the overall credit worthiness of the applicants based on credit variables and with the AUS functionality indicates a recommended level of underwriting & documentation for FHA insurance eligibility.
