Automated underwriting is software that reads your loan application and credit report and returns a recommendation, called "findings," before a human underwriter signs off. FHA uses its TOTAL Mortgage Scorecard, which lenders reach through an automated underwriting system, conventional loans use Fannie Mae's Desktop Underwriter (DU) or Freddie Mac's Loan Product Advisor (LPA), and USDA uses its own system, GUS. A good result like "Approve/Eligible" or "Accept" isn't a final approval, and a "Refer" isn't a denial. It usually means a person has to underwrite the file by hand. Here's what each result means and what happens next.
What automated underwriting actually does
The system looks at the whole picture at once: credit history, down payment, reserves, income, debts and loan features. Fannie Mae describes DU as identifying low-risk factors that can offset high-risk factors, with no single factor deciding the outcome (Fannie Mae B3-2-01). That's why two borrowers with the same credit score can get different findings.
The findings are only as good as the data. Income typed wrong, a missing debt, or a condo entered as a single-family house produces findings for a loan that doesn't exist. Lenders have to confirm the data, rerun the file when information changes, and act on anything in the file the system didn't see. Fannie requires lenders to review the credit report and look for derogatory or contradictory information that wasn't part of the data DU analyzed, and FHA requires the file to be rescored when any data element changes, outside of small tolerances (HUD 4000.1 II.A.4.a.vii).
What each result means
FHA (TOTAL Mortgage Scorecard)
HUD's handbook defines the results (HUD 4000.1 II.A.4.a.iv):
- Accept/Eligible (or Approve/Eligible): the loan may be eligible for FHA insurance if the data is accurate and complete and the whole application meets FHA requirements.
- Accept/Ineligible: your credit and capacity meet the threshold, but something about the loan doesn't meet FHA eligibility. If it can be corrected, the file is rescored. If it can't be fixed in the system, the lender can still underwrite it as an Accept but must resolve the issue under FHA rules and explain it.
- Refer, or any other result: the underwriter must manually underwrite the loan.
Even with an Accept, FHA requires a downgrade to manual underwriting in certain cases (II.A.4.a.v), including:
- Information that can't be entered into or evaluated by the scorecard, or new information that affects the loan.
- $1,000 or more in disputed derogatory credit accounts (disputed collections, charge-offs, or accounts with late payments in the last 24 months). Disputed medical accounts, and disputes from identity theft or unauthorized use with documentation, aren't counted (II.A.4.b.iii(B)).
- A bankruptcy discharge within two years of the FHA case number date.
- A short sale, foreclosure or deed-in-lieu within three years of the case number date.
- Mortgage payment history or undisclosed mortgage debt that requires a downgrade under FHA's rules.
- Business income that declined more than 20 percent over the analysis period.
Once downgraded, the lender has to stop using the automated findings and follow every manual underwriting rule (II.A.4.a.vi). See FHA credit score requirements for how scores fit in.
Conventional (Fannie Mae DU)
DU returns one of four kinds of recommendations (B3-2-01):
- Approve/Eligible: meets Fannie's credit risk standards and eligibility rules, subject to the conditions in the findings.
- Approve/Ineligible: meets Fannie's credit risk standards but not an eligibility rule, or has a mix of features outside Fannie's current limits. Sometimes more income or a bigger down payment fixes it. Otherwise the lender may manually underwrite it if that loan type allows manual underwriting (B3-2-06).
- Refer with Caution: the layering of risk doesn't meet Fannie's standards for a DU loan. The lender should check the data, the credit report and any extenuating circumstances and resubmit. If it still refers, the lender may manually underwrite under the Selling Guide if the product allows it (B3-2-07).
- Out of Scope: DU can't underwrite that product, mortgage or borrower, so it must be manually underwritten (B3-2-08).
Some products can't be manually underwritten at all. For example, a HomeReady loan above 95 percent loan-to-value must be underwritten in DU only (B5-6-01). See conventional loans.
Conventional (Freddie Mac LPA)
LPA returns an Accept or a Caution risk class. Freddie Mac says LPA can point to ways to improve a Caution, such as using an assessment of the borrower's bank account cash flow or rent payment history, which may turn a Caution into an Accept (Freddie Mac LPA).
VA
VA's training for lenders puts it plainly: the automated system "is not the decisionmaker, it is a tool," and the underwriter is required to underwrite (VA lender training, 2023). VA's own credit standards, including the 41 percent ratio benchmark and residual income, are in 38 CFR 36.4340. See VA loans.
USDA
USDA's regulation says its automated underwriting system considers compensating factors when deciding whether a ratio above USDA's standard is appropriate, and loans downgraded to manual underwriting require the lender to document compensating factors (7 CFR 3555.151(h)(2)).
"Approve" doesn't mean done
Every approve or accept comes with conditions: pay stubs, bank statements, an appraisal, explanations. The findings set the minimum documentation. They don't stop an underwriter from asking about something in your documents that contradicts the application. If your pay stubs show a gap the system didn't know about, the underwriter can and should ask. That's why a preapproval based on findings is a strong start but isn't a clear to close.
"Refer" doesn't mean denied
A refer means the system wants a person to look at the file, or the file doesn't fit the automated path. Some good files refer because of thin credit, a recent credit event or an unusual income type. From there:
- FHA: the loan can be manually underwritten under HUD's manual rules, which have their own debt ratio limits and compensating factors. I offer FHA manual underwriting. See manual underwriting.
- Conventional: manual underwriting is possible only where the product allows it, and Fannie's manual rules are tighter, starting with a 36 percent debt-to-income benchmark that can go up to 45 percent when credit score and reserve requirements are met (B3-6-02). Ask me how this applies to your file.
- Timing: sometimes the right move is waiting until a credit event is further in the past. See mortgage after bankruptcy.
Fictional example
This example is made up to show how findings work.
Tyler is buying in Arlington with an FHA loan. His first run comes back Accept/Eligible. During processing, his credit report shows a disputed credit card charge-off and a disputed collection from an old phone bill that together total $1,400 in disputed derogatory accounts. Under HUD's rules, that's at least $1,000, so his Accept has to be downgraded and the loan manually underwritten. His underwriter now applies FHA's manual ratio limits and looks for compensating factors like reserves. Separately, his co-worker Bri gets a Refer with Caution on a conventional loan because a debt was entered twice. Her loan officer fixes the data, reruns DU, and gets Approve/Eligible. Neither result was the final word on its own.
Common myths
- "A refer means my credit is bad." It means a person needs to underwrite the file, or the file doesn't fit the automated path.
- "Accept means I'm approved." It means the system's risk assessment passed. Conditions, the appraisal and document review still matter.
- "If one lender's system refers, every lender's will." The same data in the same system usually gets the same result, but data errors, the loan type and whether a lender offers manual underwriting can change the path.
- "Running findings over and over will eventually get an approve." Only real changes to accurate data should change the result.
What to have ready
- Every debt you owe, including ones that may not be on your credit report.
- Accurate income details, especially overtime, bonus or self-employment.
- Bank statements for down payment and reserves.
- Paperwork for any bankruptcy, foreclosure, short sale or disputed account.
Next step
Got a refer somewhere else, or not sure what your findings mean? Send me the details, and I'll look at whether it's a data issue, a manual underwriting path or a timing question. Schedule a call, or when you're ready, start an application.
Related questions
Sources
Links checked Oct 21, 2026.
- HUD Handbook 4000.1, II.A.4.a.iv to vii and II.A.4.b.iii(B), TOTAL Mortgage Scorecard findings, downgrades and rescoring (Update 17, issued Nov 26, 2025, the version in effect today; Update 18, issued Aug 12, 2026, may be adopted now and must be used by Nov 10, 2026, and does not change the rules cited here): https://www.hud.gov/sites/default/files/OCHCO/documents/40001-hsgh-Update-17.pdf
- Fannie Mae Selling Guide B3-2-01, General Information on DU (04/01/2026): https://selling-guide.fanniemae.com/sel/b3-2-01/general-information-du
- Fannie Mae Selling Guide B3-2-06, Approve/Ineligible Recommendations: https://selling-guide.fanniemae.com/sel/b3-2-06/approveineligible-recommendations
- Fannie Mae Selling Guide B3-2-07, Refer with Caution Recommendations: https://selling-guide.fanniemae.com/sel/b3-2-07/refer-caution-recommendations
- Fannie Mae Selling Guide B3-2-08, Out of Scope Recommendations: https://selling-guide.fanniemae.com/sel/b3-2-08/out-scope-recommendations
- Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios (manual underwriting limits): https://selling-guide.fanniemae.com/sel/b3-6-02/debt-income-ratios
- Fannie Mae Selling Guide B5-6-01, HomeReady Mortgage Loan and Borrower Eligibility: https://selling-guide.fanniemae.com/sel/b5-6-01/homeready-mortgage-loan-and-borrower-eligibility
- Freddie Mac, Loan Product Advisor (retrieved Oct 21, 2026): https://sf.freddiemac.com/tools-learning/loan-advisor/our-solutions/loan-product-advisor
- VA Lender Training (2023), Credit Underwriting: https://www.benefits.va.gov/HOMELOANS/documents/conf/2023-lender-d2-04-credit-underwriting.pdf
- 38 CFR 36.4340, VA underwriting standards (eCFR, current): https://www.ecfr.gov/current/title-38/section-36.4340
- 7 CFR 3555.151(h)(2), USDA repayment ratios and automated underwriting (eCFR, current): https://www.ecfr.gov/current/title-7/section-3555.151
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026