Desktop Underwriter is an automated mortgage underwriting system that calculates whether a loan meets approval requirements. It is used by Fannie Mae or, in some cases, by the Federal Housing Authority (FHA).
Learn how Desktop Underwriter works and how it can help you compete in the real estate market.
What is Desktop Underwriting?
Fannie Mae uses her Desktop Underwriter program to assess whether a borrower is a good risk for a loan. This is done by looking at several factors, including:
- Price
- Income
- Heritage
- Employment information
- Debt
These inputs are used to calculate whether a borrower meets the requirements for a certain loan. If the requirements are met, it will issue an automatic approval.
Desktop Underwriter sets the industry standard in mortgage underwriting. Because it is automated, it allows loan originators to make qualifying decisions using logic and algorithms. It automatically removes considerations such as race, gender or other prohibited factors.
If you can’t get automatic approval through Desktop Underwriter, you may need a manual underwriting to secure your loan.
Alternative name: Desktop Originator (used by sponsored mortgage brokers to access Desktop Underwriter)
Acronym: DU (or DO)
How does Desktop Underwriting work?
Mortgage loan promoters ask borrowers to complete a loan application, commonly called Form 1003 (called a “ten-oh-three” form).
Some information you can expect to see on a 1003 form includes:
- Mortgage type and loan terms
- Address of the property and purpose of the loan
- Information about the borrower
- Job information
- Monthly wage
- Activities
- Real estate properties
- Liabilities
- Details of the transaction
- Statements
The inputs in Desktop Underwriter correspond to these sections of Form 1003. The program then uses this information, more than 75 third-party vendors, to determine if the borrower is an acceptable financial risk and can be approved.
The income reported in Desktop Underwriter is not verified. A seller who wants to verify whether the borrower can afford to buy the home cannot verify the buyer’s income, and the lender is not required to verify the income until the loan is processed. If your income (or any other information) changes later, you may need to resubmit the loan casefile.
Desktop Underwriter is only as good as the information you provide to the program; incorrect or missing information can damage the chances of approval. Also, DU is not concerned with knowing whether a loan complies with federal regulations; this part is up to the lender.
What does Desktop Underwriting cover?
Because it assesses a buyer’s financial situation to determine if it’s a good risk for lenders, Desktop Underwriter covers a wide range of financial information. Two main components of the approval process are your credit score and your debts, as these are used to determine how worthy you are.
FICO scores
Your credit score, or FICO score, will be part of the question. However, there is no need to go online and buy your FICO score report. Desktop Underwriter uses third party vendors, such as credit reporting companies, to collect this information.
The scores you can see in your purchased report often vary from the FICO scores used by the lenders, and the highest and lowest of the three reported FICO scores are usually thrown away.
FHA has lower requirements for FICO scores than conventional loans that are sold to Fannie Mae. Borrowers with higher FICO scores tend to receive lower interest rates and more favorable loan terms, while borrowers with lower FICO scores tend to receive higher interest rates.
Debt / income ratio
Lenders want to see how much debt you have as a percentage of your income. This tells them how much money you have available on a monthly basis to pay off your mortgage. Your debt-to-income ratio is reported as both front-end and back-end.
The front-end report includes the entire mortgage payment as a percentage of gross monthly income. The PITI mortgage payment (principal, interest, tax, and insurance) may also include private mortgage insurance or mortgage insurance, plus a monthly HOA fee if the home is part of an owners association.
The back-end report takes into account all your debts. This includes not only the total home payment, but all revolving debt payments as reported to the credit reporting bureaus. If you have any debts, such as student loans or credit card debt, this ratio will be much higher than the front ratio.
The lower the percentage, the better the borrower appears as a candidate for a loan. If the ratio is too high, you are unlikely to be approved.
For many applicants, the backend ratio will begin to approach 50%. If 50% of your gross monthly income is used to pay off debt and a new home payment, it may be smarter to pay off some of that debt before re-applying for a mortgage.
Do I need Desktop Underwriting?
For many homebuyers, being approved by the Desktop Underwriter is a critical part of the home buying process. Most people cannot afford to buy a home outright and will need a loan to make the purchase.
Getting approved by a mortgage underwriter is a vital step in this process.
Once your information has been submitted to the Desktop Underwriter, it will issue an automatic approval or rejection. It will also indicate which documents are needed to verify the inputs; once the underwriter has those, the DU can be submitted again.
Before the loan can be closed, the DU will list several conditions that must be met first; Once these conditions are met, the loan is allowed to close.
Because the information it contains provides a personal look at a buyer’s finances, lenders often do not issue a DU to a buyer’s agent without the borrower’s express permission.
For some buyers, especially those in popular real estate markets, having a DU approval in hand can give them an edge in competing for a home. It allows the seller to know more firmly than a pre-approval letter that they are qualified to borrow the required amount and move on with the sale.
Key points
- Desktop Underwriter is an automated mortgage underwriting system that calculates whether a loan meets approval requirements.
- It is used by Fannie Mae or, in some cases, by the Federal Housing Authority.
- The program uses Form 1003 and more than 75 third-party providers to determine if the borrower will be approved for a loan.
- For some buyers, especially those in popular real estate markets, having a DU approval in hand can give them an edge in competing for a home.
