What is an Automated Underwriting System for a Mortgage?

Automated underwriting graphicOne of the benefits of using an automated mortgage underwriting system is that it can help mortgage lenders approve more loan applications. The systems are fast and accurate, and they can evaluate a wide range of factors that impact a borrower's ability to repay a loan. This helps lenders make better-informed decisions about who should be approved for a mortgage and how much credit should be extended.
Automated mortgage underwriting systems also help lenders reduce their risk.
With automated underwriting systems, lenders can quickly and easily assess a borrower’s eligibility for a mortgage. These systems can also help lenders make quick decisions on whether to approve or deny a loan. Fannie Mae and Freddie Mac use automated underwriting systems, and both companies have similar underwriting guidelines.

What is the Automated Underwriting Process?

Mortgage underwriting is the process of verifying a borrower's financial status and credit history in order to determine whether to issue a loan. Traditionally, this process has been done manually, but there is now a growing trend towards automating the underwriting process with computer programs. Automated underwriting systems (AUS) are software programs that analyze a borrower's financial information and credit score to determine whether they are likely to repay their loan.

AUSs have several advantages over traditional manual underwriting. First, they can speed up the mortgage approval process by automating the evaluation of borrowers' financial information.

This can be especially helpful in cases where the borrower's credit history is unclear or when there are lots of applications to review. After the computer has reached a conclusion, your lender will double-check the outcome and make a decision. Lenders use automated underwriting because it is much quicker and less expensive than human underwriting.

How Does Automated Underwriting Work?

Loan officer staring at a computer screenAutomated underwriting is a way to make credit decisions that is fully computerized and based on data and algorithms. This technology looks at the information on your application, like your name, address, and Social Security number, to decide if you are eligible.

An automated underwriting (AU) procedure involves programming a computer to analyze specific data in order to determine the likelihood that a loan will be repaid. When making a choice, it is possible to instruct a computer program to take into account an extremely large number of distinct aspects.
AU can take into account a variety of factors, including but not limited to:

  • your employment history,
  • length of current employment,
  • past employment history,
  • type of job you have,
  • length of time at present employment,
  • reason for leaving last job,
  • education level,
  • amount of debt,
  • credit history,
  • existing financial obligations,
  • assets, and
  • other information.

Automated Underwriting Vs Manual Underwriting

Automated underwriting systems (AUS) look at a client's finances, such as their credit score and income, as well as the overall value of the property they want to buy (usually determined by an appraiser).

From there, the system decides whether a customer's mortgage application should be approved or sent to a human underwriter. So, clients who are approved can move on to the next step of the mortgage loan process.

Only a few clients, like those who are just starting to build credit or have had money problems in the past, need to meet with a person to complete the loan application.

Manual mortgage underwriting is difficult since applicants must wait a long time and visit a branch or call a loan officer. Manual underwriting involves checking the applicant's financial information, such as pay stubs and tax returns, with third parties such as employers and banks.

Also, both the lender and the person who wants a mortgage loan have to wait for an appraisal to be set up and done. This slows down the process even more. So, applicants and mortgage lending companies can save money, time, and trouble by using automated mortgage underwriting to figure out if someone is eligible for mortgage insurance.

How to Tell if You’re Being Automated?

If you get a notice that you were turned down for a loan, and you think it was done automatically, you can ask the lender why. If you get a notice of denial and aren't sure if it was made by a person or a computer, you can ask for an explanation.

If you were denied a loan and don't know why, your loan application was most likely rejected automatically.

At this point, you might want to call the lender and ask if there is anything you can do to make it more likely that you will get the loan. If there's nothing you can do to make it more likely that you'll get the loan, you might want to look into other options.

You might want to talk to a lender about a different type of loan or try to find a different lender who offers a loan with better rates or terms.

Pros of Automated Underwriting Systems

Pros and cons graphicAt the moment, there are two big reasons why automated underwriting is a useful and effective tool for loan approval.
First, the process expedites the application process with the automation.
Second, it is more objective than manual underwriting, so there is less chance of bias or human error.

More consistent decisions: AU makes decisions that are more consistent for all types of loans, including credit cards.
More accurate decisions: AU makes decisions that are more accurate, especially for first-time and non-prime borrowers.
Even the playing field: Because of AU, both lenders and borrowers will have a more level playing field.

Can be used with FHA and conventional loans (Freddie Mac and Fannie Mae)

Cons of Automated Underwriting Systems

Not everyone should choose this path. You won't be approved if you have a low credit score, no credit history, a recent negative change on your credit report, or any other credit problem that you are trying to fix. You may also not be approved if your finances have changed in a big way recently, like if your income or expenses have gone up or down a lot.

Automated underwriters usually analyze data points such as credit scores too quickly.

Automated underwriting is devoid of a human element. Computerized underwriting cannot comprehend that your husband lost his job due to a medical condition or that your child is ill. Computers are wonderful if there are no problems, but if there are, the loan must be evaluated by an underwriter.

It's possible to get the creditworthiness wrong: Automated systems don't always make the right choice, which is different from humans. They can sometimes miss important details that make you look worse than you really are.

For example, even if your score is high, an AU system might not be able to tell that you are a great candidate for a certain loan product. The system doesn't take into account the fact that you've had a steady job, taken on reasonable debt, saved up a good down payment, and paid your bills on time for 20 years.

Lenders have less reason to think about giving you a loan: AU systems don't have the same motivation to give you a loan as humans do. When a person is making a decision, they want to give you a loan because if you pay it back, they will get paid.

The manual process of making decisions is unclear: When it comes to AU, the process of making decisions is unclear. You may not be notified how the system arrived at its judgments or why you were denied a loan.

The popularity of automated underwriting systems has led to an increase in the use of approval systems. These systems help financial institutions make quick and accurate decisions about whether to approve or deny a mortgage loan application.


Desktop underwriter systems are common tools used by mortgage lenders to review loan applications. These systems help lenders quickly determine whether a borrower is eligible for a loan and whether the requested loan amount is appropriate. Fannie Mae and Freddie Mac use automated underwriting systems for approval or denial of mortgage loans.

These systems use machine learning to make underwriting decisions. This technology helps lenders make quicker and more accurate decisions about whether to approve or deny a loan application. Automatic underwriting systems can be helpful in making underwriting decisions. However, these systems are not infallible. They can sometimes make incorrect decisions. Lenders should use these systems in conjunction with human underwriting to make the best decisions for their customers.