Back to Basics: Utilizing Underwriting Guidelines

Written By: NAMP® Op-Ed Ghost Writer

Although the automated underwriting system provides guidance on loan analysis, it is critical to hone your guideline reviewing skills. Underwriting guidelines contain critical definitions, clarifications, and rules that must be applied on all loans. In some cases, the AUS will refer to the guidelines for the full list of requirements to address a particular loan characteristic. As a result, let’s review some best practices for using guidelines. 

Review the seller/servicer guide for the Agency that corresponds with your AUS findings.I use the advanced search option to find guidelines that apply to my particular loan scenario. This saves time and pulls up all the chapters which contain information related to my loan. 

For example; when reviewing a USDA file, refer to the HB-1-3555 to determine the best way to handle student loan debts. When underwriting a FHA loan, refer to the Single Family Handbook 4000.1 to determine the rules for evaluating collections or disputed accounts with adverse payment history. In the case of conventional loans, Fannie Mae and Freddie Mac’s single family seller guides are required reading for borrowers with multiple financed properties. 

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From there, I will go out to my investor’s guidelines to determine what overlays they might have. Overlays are guidelines that are more conservative than Agency guidelines. For instance, if the borrower had a short sale, DU will condition for at least 2 year’s seasoning before the borrower is eligible for new financing. However, investor overlays may require 3 to 4 year’s seasoning before they will purchase the loan.

Finally, I will go out to the insurer’s guidelines to determine if they have any overlays above and beyond Agency and investor rules. One area where this is particularly applicable is with reserves. Often, DU or the investor may not have any reserve requirement for primary residence purchases. Conversely, Private Mortgage Insurance (PMI) companies might require a minimum of 2 months reserves for the higher LTV’s (95% and above).

In a world where multi-tasking is second nature and the month-end clock is always ticking, it is easy to hurry through guideline review.Unfortunately, rushing this process can be a costly mistake. Guidelines are the tools we use to plan for every contingency that would cause a loan to be unprofitable. Thorough guideline review is vital for the health of your company and the mortgage industry as a whole.

About The Author

All of NAMP® staff writers are veteran mortgage processing & underwriting instructors for Mortgage Underwriter University ( They have each conducted numerous mortgage processing & underwriting training classes and have worked in the mortgage banking industry for 25+ years. If you're interested in becoming a writer for NAMP®, please email us at:

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.