Nowadays many loan applications are initially reviewed and pre-approved by a computer program called the “Automated Underwriting System” (AUS). The potential borrower’s information is fed into the system and the “findings” come back fairly quickly. If the borrower’s information meets the criteria set by the lender, a pre-approval will be issued with a list of what documents will be needed to verify what was input into the AUS.
The above scenario works best for those applicants that check all the boxes for being “standard borrower.” For example, someone with a long-term job where they receive regular paychecks and a W-2 at the end of the year, their credit scores are good and their debt ratio (payments divided by gross income) are in line with the lender’s guidelines.
However, there are many borrowers that are not a good fit for this automated way of reviewing the application. This would be if someone is self-employed, or has irregular income, or hard to verify income, or their credit score is below the lender’s criteria, but they have an explanation for the depressed credit score like medical issues or a divorce.
So in these cases, the file may get rejected by the AUS. That does NOT mean their application has been turned down or that there is anything “wrong” with them. It just means it doesn’t fit into the neat boxes that allow a computer program to analyze it on behalf of the lender. These files need a person to actually look at the file and make a determination, what’s called a “manual underwrite.” They will look at the application and then ask for more documents or a letter of explanation for items that are out of the normal guidelines. Then they’ll make a determination of creditworthiness based on the total picture and if they feel that the borrower is a good credit risk.
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