Background

Automated underwriting systems (AUS) — like Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Product Advisor — use algorithms and rules to score loan files and surface risk items quickly. These systems sped up mortgage lending in the late 1990s and remain the backbone of most consumer mortgage decisions today. When an AUS flags a file, the lender will typically request more documentation or run a manual underwriting review. (See CFPB guidance on mortgage underwriting for consumer protections and next steps.)

How automated underwriting works, in plain terms

  • The lender feeds income, assets, credit, employment, and property data into the AUS.
  • The system compares inputs against rule sets and historical performance to produce recommendations: approve, refer, or refer with conditions.
  • A “trigger” is any rule failure or anomaly that causes the system to refer the file to underwriting or request additional conditions.

Common automated underwriting triggers

  • High debt-to-income (DTI) ratio, especially near or over common thresholds; see our guide on how DTI affects mortgage approval: How Debt-to-Income (DTI) Affects Mortgage Approval.
  • Large, unexplained deposits or recent bank activity that don’t match reported income.
  • Missing, inconsistent, or unverifiable income documentation (common for gig or self-employed borrowers — more on that below).
  • Recent significant credit events: late payments, collections, charge-offs, bankruptcy, or foreclosure.
  • Rapid changes in credit score or multiple hard inquiries in a short timeframe.
  • Employment gaps, changes, or unexplained income drops.
  • Incomplete or contradictory asset documentation (e.g., retirement accounts showing different balances).

Who is most affected

Borrowers with nonstandard income (self-employed, gig workers), recent credit events, thin credit files, or complex asset histories are more likely to trigger conditions. Lenders apply overlays as well — additional rules beyond investor guidelines — which can increase triggers.

Step-by-step plan to address triggers (actionable checklist)

  1. Pause and collect before responding. Don’t guess. Ask the lender for a written list of the conditions and the exact documentation required.
  2. Verify credit and correct errors. Pull your credit reports at AnnualCreditReport.gov, file disputes for inaccuracies, and provide proof of dispute to the lender. (CFPB explains consumer rights on credit reporting.)
  3. Provide clear, source-based documentation for income and assets: pay stubs, year-to-date profit-and-loss statements, signed tax returns, 1099s, bank statements, and account statements.
  4. Explain anomalies in a short signed letter. State facts (dates, amounts, sources) and attach supporting documents for large deposits, gaps in employment, or disputed tradelines.
  5. Reduce DTI where possible before closing: pay down credit card balances or consider temporarily delaying new debt. See our DTI guides for strategies: Understanding Debt-to-Income Ratio: What Lenders Look For.
  6. Don’t move money around last-minute. Large transfers near closing often trigger requests for source documentation and can delay the file.
  7. If self-employed or gig-based, use organized documentation: profit-and-loss statements, business bank statements, 2 years of tax returns, and client contracts. Our article on evaluating non-wage income can help: How Lenders Evaluate Non-Wage Income for Gig Workers.
  8. Ask for a manual underwrite or second review if you believe the AUS result is inaccurate. Lenders can escalate files for human review; CFPB notes consumers can request this when they suspect errors.
  9. Keep communication documented. Email threads or an uploaded file log in the lender’s portal create an audit trail and reduce back-and-forth.

Typical lender responses and timing

  • Conditional approval with a list of required documents: usually 1–2 business days to provide documents, but can extend if third-party verifications are needed.
  • Manual review: adds several business days to a couple of weeks depending on workload and complexity.
  • Denial: you should receive a written adverse action notice explaining reasons; you can dispute facts and request reconsideration.

Real-world example (brief)

A client with stable self-employment income was flagged for unexplained deposits on bank statements. We compiled invoices, a year-to-date profit-and-loss, and a signed letter tying the deposits to seasonal payments. The lender removed the condition and approved the loan after a manual review. In my practice, proactive organization of business records reduces trigger-related delays significantly.

Common mistakes to avoid

  • Waiting until underwriting to fix credit-report errors.
  • Supplying partial or unorganized documentation that creates more questions.
  • Moving funds between accounts without documenting the source.
  • Assuming a high credit score alone guarantees approval; AUS evaluates many data points.

When to get professional help

  • If you’re self-employed, a mortgage planner or CPA can prepare the documentation lenders expect.
  • If you receive an adverse action you don’t understand, a HUD-approved housing counselor or mortgage broker can explain next steps.

FAQ (short)

  • What if my application is flagged? Provide the requested documentation promptly and ask for specifics about any unclear condition.
  • Can I appeal an automated decision? Yes—request a manual underwrite or submit additional evidence. The lender must provide an adverse action notice if they deny the loan.

Disclaimer

This article is educational and does not replace personalized financial or legal advice. Rules vary by investor, loan program, and state. Consult your lender, a housing counselor, or a licensed professional for decisions affecting your finances.

Sources and further reading

Internal resources