How Long Does Automated Underwriting Take?

An index card lying on a desk with the words automated underwriting written on it.Automated underwriting has revolutionized the lending industry, promising faster and more efficient loan processing. However, the burning question on everyone's mind remains: How long does automated underwriting take?

From mortgage applications to personal loans, the time it takes for this advanced technology to assess an applicant's creditworthiness can be a make-or-break factor in securing much-needed funds.

In a world where speed and convenience reign supreme, understanding the intricacies of automated underwriting timelines is crucial for both borrowers and lenders alike.

Key Takeaways: Automated Underwriting Systems

  • Automated underwriting systems like DU and LPA use algorithms to render real-time loan approval decisions.
  • Reduces paperwork, costs, and time compared to manual underwriting.
  • They are widely used for conventional, FHA, VA, USDA, and jumbo loans.
  • Borrowers should still confirm credit reports and provide the complete required documentation.
  • Ongoing improvements in AI and machine learning will expand the capabilities of automated platforms.

Understanding automated underwriting helps borrowers smoothly navigate the high-tech mortgage process and close faster.

Understanding the Automated Underwriting System

Automated underwriting uses technology to make real-time loan approval recommendations. These computer systems analyze borrowers' credit history, income, assets, and other application data.

The automated underwriting software provides a loan decision to approve, refer, or decline mortgage applications based on underwriting guidelines within seconds. This automates a procedure that underwriters use to carry out manually.

Nearly all conventional and government loans leverage automated underwriting systems when making mortgage approval decisions.

Process of Automated Underwriting

When a borrower applies for a mortgage loan, the lender enters their credit report and loan application details into the automated underwriting system. Proprietary algorithms and technology then analyze the data in seconds.

The system evaluates the borrower's creditworthiness based on factors like:

  • Income and assets
  • Credit history and scores
  • Current debts and liabilities
  • Loan type, amount, and down payment
  • Property value

It then instantly delivers an underwriting recommendation, often within minutes after applying. This speeds up mortgage processing times significantly.

Benefits of Automated Underwriting

Automated systems offer benefits such as:

  • Fast loan decision turn times—often within minutes
  • More borrowers can qualify through consistent evaluation.
  • Reduces paperwork requirements for many applicants
  • Lowers mortgage processing costs for lenders
  • Provides fair underwriting free from human bias.
  • Helps lenders scale operations more efficiently.

By assessing applicants consistently and rapidly, automated underwriting makes mortgage lending more efficient, inclusive, and cost-effective.

Loans Eligible for Automated Underwriting

The two government-sponsored enterprises, Fannie Mae and Freddie Mac, developed the first automated underwriting systems for conventional loans.

Now, automated underwriting technology is used for:

  • Conventional mortgages
  • FHA loans
  • VA loans
  • USDA loans
  • Jumbo loans
  • Non-agency loans

Any mortgage type can potentially leverage automated underwriting, though not all lenders offer it across their entire product suite.

Fannie Mae's Desktop Underwriter (DU)

Fannie Mae released its pioneering Desktop Underwriter (DU) automated underwriting system in 1995. DU analyzes loan application data and provides underwriting recommendations in real-time.

DU classifies loans as:

  • DU Approve: Meets requirements with minimal documentation needed.
  • DU Approve with Conditions: Meets criteria contingent on certain conditions being met.
  • DU Refer with Caution: This Needs further manual underwriting review.
  • DU Out of Scope/Eligible: Requires full manual underwriting

DU looks at the same factors human underwriters would assess but uses algorithms to do so instantly. This was revolutionary when it was introduced.

Freddie Mac's Loan Product Advisor (LPA)

Soon after, Freddie Mac launched its Loan Product Advisor (LPA) automated underwriting system.

LPA categorizes loans as follows:

  • Accept: Meets all requirements
  • Caution: Generally meets requirements but warrants additional review.
  • Refer: Ineligible through LPA, needs full manual underwriting.

Freddie Mac touts LPA's ability to assess loan data in as little as 9 seconds, automating decisions on eligibility.

Guidelines for Borrowers in Automated Underwriting

For the best results with automated underwriting:

  • Check credit reports and scores in advance and resolve any errors.
  • Pay down revolving balances to reduce debt.
  • Gather all income and asset documentation upfront.
  • Be upfront about all financial details, and don't try to hide anything.
  • Follow up quickly on any conditions if the system requires more verification.

Meeting automated underwriting requirements expedites the approval process.

Comparison: Manual vs. Automated Underwriting

While still used in specific loan scenarios, manual underwriting is when an actual human underwriter reviews the entire application and makes approval judgments.

Manual underwriting is typically slower, more paperwork-intensive, inconsistently applied, and prone to human bias. Automated systems deliver faster, fairer mortgage underwriting in most cases.

Advancements in Automated Underwriting Technology

Technology enhancements will allow automated underwriting systems to take on more complex approval decisions. Artificial intelligence and machine learning continue to advance these platforms.

The goal is accurate, straight-through mortgage processing, requiring minimal human intervention for substantial efficiency gains. Fannie Mae and Freddie Mac continue leading this digital transformation.

Summary and Recommendations

In conclusion, the duration of automated underwriting can vary depending on the specific lender, loan type, and individual circumstances. Generally, the process can take anywhere from a few minutes to a few days.

It is important for applicants to ensure that they provide accurate and complete information to expedite the underwriting process. While automated underwriting offers speed and efficiency, it's essential for borrowers to remain patient throughout the process.

Overall, understanding the factors that influence the timeline of automated underwriting can help borrowers navigate the process with clarity and confidence.

If you're currently in the process of automated underwriting, stay proactive in communicating with your lender and providing any necessary documentation to help move things along smoothly.

Automated Underwriting System (Aus)