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What is Automated Underwriting in Mortgage Lending?

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Automated Underwriting in Mortgage Lending is the process and set of steps when a lender estimates the risk of issuing the mortgage to the borrower. Usually, the lender takes into account three main indexes: credit, capacity, and collateral.

The programmers have already created computer models that analyze different aspects of mortgage along with the borrower’s information, estimate the risk, and give recommendations. The use of the modern software is significant. The original sources of the financing that sell the loans to the lending institutions can’t store the loans for the long period. Therefore, the lenders tend to use automated underwriting guidelines.

The lender receives a full information about the risk he can only have an idea of.

The first thing under analysis is a credit report. It shows how the lender dealt with previous debts and how many debts he has now. Three credit bureaus (Equifax, Transunion, and Experian) provide information about it. Unfortunately, the reports contain information about judgments and bankruptcies.

Of course, the automated underwriting includes checking out a credit score. The number ranges from 350 to 850.

The underwriter receives information about income and estimates the collateral. When the person analyzes the income, he definitely calculates the debt-to-income ratio. It’s a percentage of the monthly gross income in comparison to the debt.

After the underwriter analyzes all information, he can make a conclusion and describe the risk for the lender.

The lenders might not follow the directions of the automated underwriting in mortgage lending. Still, their decisions are usually based on this conclusion.