Residential Underwriting
The Residential Underwriting domain tests the decision chain from application to eligible collateral. You must verify income, assets, credit, and property; calculate DTI and LTV/CLTV; apply investor, insurer, and program rules; and document any exception with compensating factors. Occupancy must match program requirements, and investment properties require rental income analysis and reserves.
Income and assets
- Salary/wage base income is supported by a YTD paystub and W-2; bonus, overtime, and commission are generally averaged over two years and must be likely to continue.
- Self-employed borrowers require two years of personal and business returns, K-1s, and a YTD P&L; evaluate declining revenue, add-backs, and liquidity.
- Rental income uses 75% of market rent or Schedule E treatment; a two-year history is needed for a departure rental.
- Assets must be sourced; gift funds require a donor letter and transfer trail; reserves are counted after closing; business funds need access evidence.
Credit and capacity
- Review the tri-merge report, scores, tradelines, and derogatory explanations; observe program waiting periods after bankruptcy, foreclosure, deed-in-lieu, or short sale.
- DTI includes PITI, HOA dues, subordinate liens, and all recurring debts. Use AUS findings when eligible; manual underwriting requires documented compensating factors such as low LTV, reserves, residual income, or long housing tenure.
Collateral
- The appraisal must support value, condition, marketability, and highest and best use; review condo/project eligibility, title, and hazard/flood insurance.
Worked example: Gross monthly income is $8,000. PITI is $1,900, HOA $150, car $450, student loan $250, and card minimum $100. Total debt = $2,850; DTI = 2,850/8,000 = 35.6%. Purchase price is $475,000 and loan $380,000 = 80% LTV. If AUS allows 45% DTI, capacity is acceptable; if self-employed income fell 20%, re-underwrite at $6,400, raising DTI to 44.5%-near the limit and requiring reserves as a compensating factor.
Traps: treating an AUS approve/eligible finding as final without re-verifying data; using gross deposits rather than net; ignoring HOA or subordinate liens; using appraised value when purchase price is lower; missing gift sourcing; and averaging declining self-employed income without trend analysis.