Underwriting is the process by which a lender evaluates the risk of a borrower, as well as their eligibility for a specific loan program.
There are multiple stages and layers of underwriting. Depending on the type of loan you’re seeking, you might need to meet a certain set of requirements. In addition, lenders can have their own guidelines borrowers must meet.
For most homebuyers, the first layer of underwriting they encounter is through an automated underwriting system. There are several types, and these computer programs basically evaluate a prospective buyer’s credit and financial profile to make a preliminary judgment about their loan file.
USDA lending utilizes an automated system known as GUS, which stands for Guaranteed Underwriting System.
Let’s take a closer look.
GUS was created to automate the process of credit risk evaluation for USDA loans, and thus speed up the approval process for USDA borrowers. It uses a scorecard system, as well as built-in rules, to automatically approve or deny an applicant’s loan for underwriting.
Specifically, GUS judges applicants based on:
In order to automatically approve an application for underwriting, GUS will need to see that:
Once GUS has evaluated an applicant, it will offer a recommendation based on their assessed risk and underwriting potential.
There are three types of underwriting recommendations. These ensure the applicant and loan adhere to USDA loan regulations and that the property is located in a USDA-eligible area.
Potential recommendations include:
In the event the USDA GUS system does not approve a loan for automatic underwriting, there are other options. As long as the applicant and property are eligible under USDA regulations, they can resubmit their application for manual underwriting, allowing a human underwriter to evaluate their loan file personally and by hand.
Applicants can also request manual underwriting if:
It’s important to note that the manual underwriting has stricter requirements.
USDA underwriting can take longer than traditional mortgage loans, as it must go through a two-party approval system. Once the lender has underwritten and approved the loan, it must also be approved by the state’s USDA office. This can add extra time to the closing process, depending on the state and other factors.
Resubmitting for manual underwriting can also add extra time to USDA loan approvals. Typically though, borrowers can expect their USDA loans to close in 60 days or less. A loan that is automatically approved for underwriting via GUS may be processed faster.