Short answer
It means the software couldn't approve the loan on its own, not that you were denied. On a Fannie Mae loan, a Refer with Caution means the file can't be sold as an automated approval; the lender rechecks the data and may underwrite it by hand if the program allows. On an FHA loan, a Refer must be manually underwritten by a person, with stricter documentation and limits.
What is automated underwriting?
Lenders run your application through software that weighs credit, income, assets and debts against the loan program's rules. Fannie Mae's system is Desktop Underwriter. FHA uses its TOTAL Mortgage Scorecard, run through an automated system. The result is a recommendation, such as Approve/Eligible or Accept, or a Refer.
Refer with Caution on a Fannie Mae loan
Fannie Mae's Selling Guide (B3-2-07) says a Refer with Caution reflects more layered risk than an Approve. The lender should check that income, assets and debts were entered correctly, look for credit report errors or extenuating circumstances, update the file and run it again. If the result doesn't change, the lender may manually underwrite the loan, but only where the program and transaction allow manual underwriting.
Refer on an FHA loan
HUD's Handbook 4000.1 requires an underwriter to manually underwrite any FHA file that gets a Refer. Some files that get an Accept must be downgraded to manual underwriting anyway, including when:
- a bankruptcy was discharged within two years of the FHA case number date
- a foreclosure, short sale or deed in lieu happened within three years
- disputed derogatory accounts are large enough, or a late mortgage payment history requires it
- business income dropped significantly, or the file has information the software can't evaluate
What makes a manual approval possible?
Manual FHA underwriting has its own debt-to-income limits. Going beyond the basic limit takes documented compensating factors, such as verified cash reserves, a small increase over your current housing payment, extra income not counted in qualifying, or strong residual income. A clear letter of explanation for past credit problems also helps.
See also what to do if your mortgage is denied and late mortgage payments and a new loan.
Sources
- Fannie Mae Selling Guide, B3-2-07, Refer with Caution Recommendations (02/01/2023)
- HUD Single Family Housing Policy Handbook 4000.1, Update 18 (August 2026), Feedback Certificates, Downgrades and Manual Underwriting
Checked November 2, 2026. Rules and dates change, so confirm current details before you rely on them.
General information only, not tax or legal advice. Program availability, eligibility and terms vary by lender and are subject to change and to underwriting approval. Not a commitment to lend.