It is no secret that lenders look at your financial situation when deciding on whether to approve a home loan. However, many people don’t fully understand how this process–also known as underwriting–works.

In certain situations, manual underwriting can help borrowers get approved for a mortgage when they might otherwise be declined by automated underwriting.

How Does Manual Underwriting Work?

An automated underwriting system (AUS) evaluates most borrowers’ applications. This computerized program assesses information from your application and decides whether or not you should be approved for a home loan. Financial institutions often use an AUS because it speeds up the process and is usually reliable.

However, there are certain situations when automated underwriting doesn’t cut it, and manual underwriting (underwriting done by a person) may be needed.

When a manual underwriter gets involved, they review each detail of your application. They consider factors that an AUS may miss, such as non-traditional income or cash reserves. This process often helps borrowers get approved who otherwise might not have been.

What Factors Do Manual Underwriters Typically Consider?

Manual underwriters look at several things when assessing an application. They want to make sure that you have the financial ability to make your payments on time. Here are a few things they usually review:

  1. The first thing they evaluate is your income, including self-employment income and other revenue from non-traditional sources – the more stable your income history and employment history, the better.
  2. Next, your underwriter will look at your credit history. They will check to see if you have taken measures to improve your credit and make all payments on time.
  3. They will review your down payment, which may help them determine if you can be approved for a loan or not.
  4. They will consider your debt-to-income ratio (DTI), the percentage of your monthly income that goes toward paying your debt. If the balance is too high, you may have trouble getting approved.
  5. Your savings, or cash reserves, will also be considered when your application is manually underwritten. The underwriter notes how many months of expenses they would likely cover.
  6. Lastly, your underwriter will review your loan-to-value ratio. This figure reflects what percentage of the home’s value you seek to borrow. The larger your down payment, the lower your loan-to-value ratio will be.

Who Might Benefit the Most From Manual Underwriting?

There are several situations in which manual underwriting might be the best fit. Often, if the AUS declines an application, then lenders will utilize manual or blended underwriting.

Borrowers and lenders may also request that loans be manually underwritten. If one of the following scenarios fits your situation, you may want to consider using manual underwriting:

  • You are self-employed or have other non-traditional earnings. With this type of income, your loan will probably need manual underwriting.
  • You have a poor credit history. Poor credit can hurt your chances of being approved by the automated system. You may consider manual underwriting if you’ve had financial problems (such as foreclosure).
  • Your debt-to-income ratio is a bit high. Sometimes automated systems have stricter DTI guidelines than manual underwriters.
  • You are applying for a jumbo loan, a mortgage loan for an amount greater than the conforming limit. Because these loans are larger, your application will need to be individually reviewed in greater detail.

What Kinds of Features, Terms, and Requirements Are Associated with Manual Underwriting?

Here are a few features, terms, and requirements for manual underwriting at Fairway Independent Mortgage.

  • We have 15 and 30-year fixed rates and 5-year, 7-year, and 10-year ARMs.
  • If you want to keep your payments low and manage cash flow, we have a 10-year interest-only feature available.
  • A credit score of at least 600 is required.
  • The maximum loan amount is $3 million.
  • Typically, the loan-to-value maximum is 90%.
  • We allow for purchases, rate/term refinances, and cash-out refinances.
  • We can use manual underwriting for primary, secondary, and investment properties.
  • We allow for up to 55% debt-to-income ratio.
  • Two to four units are allowed on primary and investment properties.
  • First-time home buyers are permitted.
  • Borrowers cannot have more than one late mortgage payment in the last 12 months.

The Bottom Line

Often, manual underwriting brings back the element of “common-sense” decisions. Because a human reviews your application, this process usually takes longer than the automated underwriting system. You may also be required to supply additional documents, such as verification of assets and several years’ worth of tax returns.

Using a reputable lender such as Fairway Independent Mortgage is crucial when applying for a home loan, whether manually or automatically underwritten.

We’d love to discuss if manual underwriting might be suitable for you! Please reach out to us today to learn more about your loan options.