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Getting approved for a mortgage loan can seem mystifying, especially if your finances don’t fit neatly into a lender’s automated underwriting algorithms. That’s where manual underwriting comes in – when an actual human reviews your full financial picture to determine if you qualify for a home loan.
I want to demystify the manual underwriting process so you understand what it is, when it’s used, and how you can get prepared if manual underwriting is likely for your mortgage application
What Is Manual Underwriting?
Manual underwriting is when a lender has an underwriter manually review your finances rather than relying solely on an automated underwriting system.
The underwriter will look at documents like your bank statements, tax returns, pay stubs, and credit report. They analyze details like your income, assets, debts, credit history, and down payment amount. Based on their review, they’ll decide if you meet the lending guidelines or if you need to provide more documentation.
It’s a much more hands-on, customized process compared to the automated underwriting used for most conventional loans these days.
When Do Lenders Use Manual Underwriting?
You’re more likely to go through manual underwriting if you have:
- Limited credit history
- Past credit issues like bankruptcy or foreclosure
- A high debt-to-income ratio
- Variable or seasonal income
- A unique financial situation that doesn’t fit lending algorithms
Certain types of mortgages like jumbo loans over $3 million also often require manual underwriting.
The bottom line is that lenders use manual underwriting anytime they need a nuanced human perspective to fully analyze an applicant’s financial story.
How Does The Manual Underwriting Process Work?
While timeframes vary, you can generally expect the manual underwriting process to follow this flow:
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You submit financial documentation. This includes bank statements, tax returns, and proof of your income and assets. Be sure to provide everything upfront to avoid delays.
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The underwriter reviews your documentation. They analyze details like your income history, monthly debts, and credit report. Expect follow-up questions as they verify information.
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The underwriter requests any additional documentation. For example, they may ask for more bank statements or a written explanation about past credit issues. Respond to information requests quickly and completely.
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The underwriter makes a decision. They’ll either approve your loan, deny it, or approve it with certain conditions.
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If approved, you move forward with finalizing the mortgage. You’ll go through the rest of the lending process, like getting an appraisal and going through closing.
Tips For Smooth Sailing With Manual Underwriting
While manual underwriting takes more time and paperwork, going in prepared can help your chances of getting approved. Here are my top tips:
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Highlight stable income – Show consistency by providing several years of tax returns and documentation like employer letters.
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Explain credit issues – Be ready to provide context if you had past financial difficulties. What happened and how are things different now?
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Respond quickly – Have all documents ready and answer lender inquiries ASAP to prevent delays.
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Ask questions – Don’t be afraid to ask your lender what else they need to approve you. Be proactive.
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Consider getting guidance – A mortgage broker or advisor can help guide you through manual underwriting.
The Takeaway On Manual Underwriting
While automated underwriting works for many, manual underwriting gives lenders the flexibility to make nuanced lending decisions based on your full financial picture.
If you have unique circumstances, limited credit history, or past issues, don’t assume you’re out of luck. Manual underwriting still provides a path to homeownership if you come prepared with strong documentation.
While the process takes longer and requires more effort on your part, manual underwriting can be what stands between you and your dream home. Now that you understand what it entails, you can approach it with confidence rather than confusion.
Manual underwriting vs. automated underwriting
| Manual underwriting | Automated underwriting | |
|---|---|---|
| Who or what is doing it? | A person | An algorithm |
| How long will it take? | Varies, but can take days for preapproval and much longer for full sign-off on the loan | Varies for final approval, but conditional approvals happen in minutes |
| How strict are the requirements? | An underwriter will work with you to gather a lot of financial information and determine your risk level | Must meet set requirements, such as for credit score and debt-to-income ratio, which vary by loan type |
In the past, all mortgage applications were manually underwritten. When it happens today, an underwriter reviews a mountain of information about your finances to determine how much money you earn, how much money you have to spend and how much mortgage debt you can comfortably manage.
Automated underwriting is completed through an automated system. With automated underwriting, your lender can gather account information directly from your bank, retirement fund or stock brokerage and access your tax returns. Because of this, most of your loan can be underwritten within minutes.
In some cases, lenders use a mix of both types — also known as blended underwriting. A lender may want to go the blended route to avoid having a qualified borrower rejected or an unqualified borrower mistakenly approved.
What is manual underwriting?
When a mortgage application is manually underwritten, an underwriter reviews the application. This person looks at factors like the borrower’s debt-to-income ratio, loan-to-value ratio, credit score and history, assets, liabilities, income and employment.
Manual underwriting is typically used when your responses to some of the questions on a mortgage application would likely raise red flags or if you have unique circumstances.
Some types of mortgages require manual underwriting if the borrower doesn’t meet certain standards, such as having a higher amount of debt or a lower credit score. Through manual underwriting, these kinds of borrowers may be able to show why they should qualify for financing.
Mortgage 101 – Manual Underwriting When Getting A Mortgage
FAQ
Can you get a mortgage with manual underwriting?
Is manual underwriting worth it?
What is the minimum credit score for a manual underwrite?
How long does it take to manually underwrite a loan?
What is the mortgage underwriting process?
The mortgage underwriting process determines whether your finances are strong enough to repay the home loan you’re applying for. And, because anyone’s finances could take a turn for the worse, the underwriting process also evaluates whether the property you want to buy will be valuable enough to repay the loan if the lender has to foreclose.
What lenders offer manual underwriting?
Many lenders offer manual underwriting, most commonly for mortgages. Lenders that offer manual underwriting for home loans include: Alterra Home Loans, CashCall Mortgage, New American Funding, and NewRez. Banks with underwriting services include: Bank of America, Flagstar Bank, PNC Bank, and Wells Fargo.
Is manual underwriting a good idea?
However, if you have a unique financial situation, manual underwriting can improve your chances of getting a loan. Underwriting, whether automated or manual, takes place late in the home buying process so if you haven’t been preapproved for a mortgage loan yet, that should be your first step. When Is Manual Underwriting Done?
Does FHA require manual underwriting?
FHA, VA, or other government-backed loans: Most of these government-backed loans use automatic underwriting, though manual underwriting can be permitted, or even required in some cases. For example, for FHA loans where the applicant’s credit score is under 620 or debt-to-income exceeds 43 percent, lenders must use manual underwriting. Be kind.