How to Underwrite FHA Mortgage Loans
An FHA loan, or Federal Housing Authority loan, is a type of home loan insured by the federal government. These loans are not direct loans from the government. If you are interested in underwriting FHA loans, you first must be approved by an FHA lender. Once approved and trained, you can begin underwriting these mortgage products. The process requires attention to detail and can be challenging.
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Instructions
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Log in to the Desktop Underwriter program. You should have a user ID and password. Once you are in, you will have a queue of mortgage applications ready for review.
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Search for the specific mortgage you are considering, using the Mortgage Case File ID number. This will pull up the consumer application.
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Review the demographic information---name, date of birth, address, previous addresses. Look for red flags. For example, if the applicant has not lived at his current address for more than three months, the FHA will not allow a refinance (assuming you are underwriting a refinance application).
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Look at the credit report. The FHA uses a matrix to determine interest rates and payments. For example, a 720 FICO score (a three-digit number between 300 and 850) might qualify an applicant for the best rate available. However, you are required to thoroughly examine the credit report. If the applicant has delinquencies on his credit report, you'll need an explanation before giving a pre-approval or an approval.
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Calculate the applicant's income. While there will be an income verifier in your software, it doesn't hurt to know how to arrive at those figures. To determine a debt-to-income ratio (DIR), divide the applicant's total credit-reportable monthly payments by his total gross monthly income. FHA guidelines on DIR differ depending on the state and the credit score, but most FHA loans are underwritten with DIRs below 40 percent.
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Check the home appraisal. While the appraiser who completed the review is the expert, you'll need to look at the comparables (the homes used to justify the market value given to the property in question) to make sure it is a fair review. To do this, look at the square footage, number of rooms, and neighborhoods in which the comparables are located.
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Make sure the market value supports the loan-to-value (LTV) ratio on the mortgage application. A mortgage rate hinges upon the LTV. To calculate the LTV (again, which will populate in the software), divide the mortgage amount by the appraised value. You cannot approve a loan with an LTV over 100 percent. Depending on your state, the credit score and the DIR, you might be able to finance up to 95 percent DIR. Speak with the loan officer before making changes on the loan application.
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Sign off on the application if the demographics, income, credit and LTV ratio are all sound. If there are issues that you cannot resolve, you can either approve the loan conditionally or send the application to your supervisor's queue---he or she will make the final decision.
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