What is Desktop Underwriting?

Definition & Examples of Desktop Underwriting

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Desktop Underwriter is an automated system for mortgage underwriting that calculates whether a loan meets approval requirements. It is used by Fannie Mae or, in some cases, the Federal Housing Authority (FHA).

Learn how Desktop Underwriter works and how it can help you compete in the real estate market.

What Is Desktop Underwriting?

Fannie Mae uses its Desktop Underwriter program to evaluate whether a borrower is a good risk for a loan. This is done by looking at several factors, including:

  • Price
  • Income
  • Assets
  • Employment Information
  • Debt

These inputs are used to calculate whether a borrower meets the qualifications for a certain loan. If the requirements are met, it will issue an automated approval.

Desktop Underwriter sets the industry standard in underwriting mortgages. Since it's automated, it allows loan originators to make qualification decisions using logic and algorithms. It automatically removes considerations such as race, gender, or other prohibited factors.

If you can't get an automated approval through Desktop Underwriter, you may need manual underwriting to secure your loan.

Alternate name: Desktop Originator (used by sponsored mortgage brokers to access Desktop Underwriter)

Acronym: DU (or DO)

How Does Desktop Underwriting Work?

Mortgage loan originators ask borrowers to complete a loan application, commonly referred to as a Form 1003 (said as form "ten-oh-three").

Some pieces of information you can expect to see on a Form 1003 include:

  • Type of mortgage and terms of the loan
  • Property address and purpose of the loan
  • Borrower information
  • Employment information
  • Monthly income
  • Assets
  • Real estate owned
  • Liabilities
  • Details of transaction
  • Declarations

The inputs in Desktop Underwriter correspond to these sections of Form 1003. The program then uses this information, plus more than 75 third party vendors, to determine whether the borrower is an acceptable financial risk and can be approved.

Income reported to Desktop Underwriter is not verified. A seller who wants to review whether the borrower can afford to buy the home can't verify a buyer's income, and the lender is not required to verify the income until the loan processing begins. If income (or any other information) changes later, the loan casefile may need to be resubmitted.

Desktop Underwriter is only as good as the information supplied to the program; incorrect or missing information can damage your chances of approval. Also, DU does not address whether a loan complies with federal regulations; that part is up to the lender.

What Does Desktop Underwriting Cover?

Because it evaluates a buyer's financial situation to determine whether they are a good risk for lenders, Desktop Underwriter covers a broad range of financial information. Two major components of the approval process are your credit score and your debts, as these are used to determine how trustworthy a borrow you are.

FICO Scores

Your credit score, or FICO score, will be part of the application. However, you don't need to go online and buy your FICO score report. Desktop Underwriter uses third-party vendors, such as credit reporting companies, to collect this information.

The scores you may see in your purchased report often vary from the FICO scores lenders use, and the highest and lowest of the three FICO scores reported are usually thrown out.

FHA has lower requirements for FICO scores than conventional loans that are sold to Fannie Mae. Borrowers with higher FICO scores tend to receive lower interest rates and more favorable lending terms, whereas borrowers with lower FICO scores tend to receive higher interest rates.

Debt-To-Income Ratios

Lenders want to see how much debt you have as a percentage of your income. This tells them how much money you have available on a monthly basis to pay your mortgage. Your debt-to-income ratio is reported as both front-end and back-end.

The front-end ratios include the entire mortgage payment as a percentage of gross monthly income. The PITI mortgage payment (principal, interest, taxes, and insurance) can also include private mortgage insurance or mutual mortgage insurance, plus a monthly HOA fee if the home is part of a homeowners association.

The back-end ratio takes all your debts into account. This includes not only the total housing payment but all revolving debt payments as reported to the credit reporting bureaus. If you have debt, such as student loans or credit card debt, this ratio will be much higher than the front-end ration.

The lower the percentage, the better the borrower appears as a candidate for a loan. If the ratio is too high, you are unlikely to be approved.

For many applicants, the back-end ratio will begin to approach 50%. If 50% of your gross monthly income is being used to repay debt and a new housing payment, it might be smarter to pay down some of that debt before reapplying for a mortgage.

Do I Need Desktop Underwriting?

For many homebuyers, being approved by Desktop Underwriter is a critical part of the home-buying process. Most people cannot afford to buy a home outright and will need a loan in order to make the purchase.

Being approved by a mortgage underwriter is a critical step in that process.

Once your information is submitted into the Desktop Underwriter, it will issue an automatic approval or denial. It will also indicate what documents are necessary to verify the inputs; once the mortgage underwriter has those, the DU can be submitted again.

Before the loan can be closed, the DU will list several conditions that must be met first; once those conditions are met, the loan is cleared to close.

Because the information it contains provides a personal look at a buyer's finances, lenders often will not release a DU to a buyer's agent without express authorization from the borrower.

For some buyers, especially those in popular real estate markets, having a DU approval in hand can give them an edge in competing for a house. It lets the seller know more firmly than a preapproval letter that they are qualified to borrow the necessary amount and move forward with the sale.

Key Takeaways

  • Desktop Underwriter is an automated system for mortgage underwriting that calculates whether a loan meets approval requirements.
  • It is used by Fannie Mae or, in some cases, the Federal Housing Authority.
  • The program uses Form 1003 plus more than 75 third party vendors to determine whether the borrower will be approved for a loan.
  • For some buyers, especially those in popular real estate markets, having a DU approval in hand can give them an edge in competing for a house.

Article Sources

  1. Fannie Mae. "Applications & Technology: Desktop Underwriter Validation Service." Accessed July 5, 2020.

  2. Fannie Mae. "Applications & Technology: Desktop Underwriter & Desktop Originator." Accessed July 5, 2020.

  3. Fannie Mae. "DU Validation Service Checklist." Accessed July 5, 2020.

  4. Fannie Mae. "Form 1003 Uniform Residential Loan Application." Accessed July 5, 2020. 

  5. Fannie Mae. "Desktop Underwriter® (DU®) Validation Service." Accessed July 5, 2020.