Manual vs. Automated Underwriting Lenders:
The automated system of underwriting is done on a computer through different software. It is a quick process to examine the application of the borrower. But it has some reservations. Manual underwriting is the process that is done without a computer or manually by a lender or underwriter. It is a time-consuming and worthy process to decide whether the applicant is eligible for a house loan or not.
Process Followed by Underwriting Lenders:
When automated deep insight is completed, the lender proceeds manual process. The initial step is to verify identity, then determine stability, employment income, and investigation of tax returns, financial statements, and credit scores. By examining manually, lenders make a solid decision about providing service.
Checking of Risky Borrowers:
Underwriting Lenders are also restricted to finding out the reality about risky borrowers by checking income to debt ratio, loan to value rate, income expectation for seeable future, application, and supporting documents. All these investigations ensure that the applicant is not committing fraud. The lender approves the borrower at the end of the given procedure.
Reasons for Using Manual Writing:
When automated underwriting is completed by software, the manual underwriting process initiates by the lender to check out the application status of the borrower. Sometimes the automated system can suggest manual underwriting processes due to complications in checking income, assets, credit, debts, and liabilities. Manual underwriting is also adopted when automated systems deny the process due to some past credit history and low credit scores. For example, FHA loans do not accept automated underwriting when the credit score is less than six hundred and twenty or the debt to income ratio is less than forty-three percent. Here is only manual underwriting, which can be helpful. It has also been initiated due to low standards of application.
Condition:
As the result of all investigations, examinations, and considerations, the underwriting lender decides on one of three conditions.
Approval:
The lender can approve an application for a loan after investigating the essential information. Mostly approval is given with one of these three ‘approve, refer, refer with caution’ conditions.
Suspension:
The lender investigates the property, assets, salary, and future expectations. If the lender finds any missing information, he can suspend the application until the particular person does not give further clarification.
Denial:
After checking the application deeply, if the lender found any misconduct or fraud throughout the process, he has the authority to reject the house loan application. The rejection of applications is a denial condition.
Rent Verification:
Rent Verification is also required for underwriting by the lender. The lender investigates about applicant’s monthly rent payments. Here is essential for the applicant or borrower to show that he pays the house rent on time. In this process, the underwriter sends documents for verification to the applicant’s landlord. The House owner also has to provide rent details for the last twelve months. After that verification, the underwriter decides whether he is eligible for a house loan.
Conclusion:
Underwriting is the procedure through which a lender investigates about borrower whether his assets are enough to pay his loan. It is done in three types one is manual, the other is automated, and the last one is blended underwriting; through these steps, the lender decides the future of the borrower. The manual underwriting is a time-consuming and trustee process to examine the applicant’s eligibility for a loan after the underwriting lender finalizes approval, suspension, or denial of the application.
What is the difference between manual underwriting and automated underwriting?
Manual underwriting is done without a computer or software manually; in it, the lender investigates the assets, salary, and documents. It is time-consuming and the best process. Automated underwriting is a process that is done by using a computer through particular software.
Why is mostly manual underwriting done instead of automated underwriting?
Firstly, manual underwriting is the best process to examine. Secondly, when the applicable standard is low or found any other complications, the manual method is the only thing that proceeds the process. Also, sometimes, automated process is denied for some credit reasons then also manual handling is necessary.
