Manual Underwriting Guide

By PropertyClub Team
Aug 31st 2023
Manual underwriting is the process in which an underwriter scrutinizes your finances and analyzes your ability to repay a mortgage loan. It's a time-consuming, but necessary process for buyers who don't get automated approval.

For many people, manual underwriting can be the difference between getting a loan and getting denied. For instance, if you have no credit or bad credit, if you’re self-employed, or if your savings situation is less than ideal, automated underwriting programs can be quick to turn you down, and you'll need manual underwriting to get your loan approved. 

hash-markTable of Contents

What Is Manual Underwriting?
How Can Manual Underwriting Help You Get a Mortgage
Manual Underwriting Required Information
What Do Manual Underwriters Look At?
Manual Underwriting Bottom Line

hash-markWhat Is Manual Underwriting?

Manual underwriting is the process of performing the loan approval and underwriting by a human being rather than by an algorithm. A manual underwriter can take into account and evaluate a buyer's specific circumstances, so this type of underwriting is needed when a buyer might not be easily approved by a lender's software, for example, if they have a limited credit history or are self-employed.  

hash-markHow Can Manual Underwriting Help You Get a Mortgage?

These days, most banks use software to make most approval decisions. The problem is that real life isn’t always black and white. Details matter, and only a manual underwriter can understand certain nuances. For example, the software will usually require a minimum credit rating to qualify for a loan. Now, imagine that a given loan requires a score of 620, but your credit score is 618. In that case, an algorithm would deny your application. This is where manual underwriting comes in. 

For example, let’s suppose that you recently took a hit to your credit score because you were injured at work and fell behind on a few payments. A manual underwriter can see this, see that you’ve made up the payments, and take that into account.

Similarly, some sorts of self-employment can make it hard to count your income. A computer algorithm can miss significant portions of your income and turn you down for a loan that you should actually qualify for.

Another thing to keep in mind is that private banks can generally offer more flexibility. Federal programs such as FHA mortgage loans have strict criteria. Under most circumstances, if an algorithm denies your application for an FHA loan, so will a manual underwriter.

hash-markManual Underwriting Required Information

With manual underwriting, your lender will require you to submit various financial documents. Exactly which documents are required will depend on your exact situation, so there are no hard and fast rules. That said, there are several common requests you may receive:

  • Pay stubs or bank statements for as long as the last 12 months
  • Profit and loss statements for self-employment or small business income
  • Tax returns, both for you and for any small business
  • Your resume (for employment verification)
  • Information on savings accounts, retirement accounts, and taxable brokerage accounts
  • Verification of any collateral such as second homes, vehicles, or real estate

The better your records are, the easier it will be to provide all this information during the manual underwriting process. Under most circumstances, underwriters can render a decision within a few days of receiving this info. However, in some situations, they may need to request additional documentation to complete the process.

hash-markWhat Do Manual Underwriters Look At?

  • Your Credit Report
  • Income and Asset Records
  • Your Collateral
  • Your Existing Debt

So, how does the manual underwriter decide whether you’re approved for a mortgage loan? There are several factors that come into play. Let’s take a closer look at each of them and see how they come into play.

1. Your Credit Report

The most important factor for most lenders is going to be your credit report. The reason for this is obvious: it reflects how you handle debt. It lets your lender know if you’re liable to make late payments or go into default. The higher your rating, the better terms you’ll qualify for. But if you have poor credit or no credit, manual underwriting will be necessary to be approved for a mortgage. 

However, there are some issues you may run into. First, you may have a bankruptcy or default on your credit record. In this case, your underwriter may request more information. This is not the worst thing that can happen. They haven’t denied your loan. A short letter explaining the circumstances of the default or bankruptcy can potentially get you approved.

Another potential pitfall is if you don’t have any credit at all. In this case, an underwriter may ask for proof of past on-time payments. Rent receipts, utility records, and insurance records can help your underwriter understand your history.

2. Income and Asset Records

The next important factor your lender needs to look at during the manual underwriting process is how much money you have. This falls into two categories: income and assets.

Your income calculation is fairly straightforward. First, your lender will look at your net income. Then, they’ll look at your expected monthly mortgage payment, your homeowner’s insurance bill, and your property tax. Can you afford it?

This can be a problem for some people. For instance, if you make a large portion of your income in an annual bonus, that income may not show up on the last few months’ worth of pay stubs. In that case, your underwriter may need to contact your employer for further information.

Assets refer to anything you own of significant value. Savings accounts are the most common type of asset, but real estate also counts. So if this is a second home and you already own your first home, your first home counts as an asset. Retirement and brokerage accounts are assets too, so make sure your underwriter knows about these.

3. Your Collateral

Your assets will be considered as potential collateral and can help you qualify for a mortgage loan. If your net worth or assets will help you qualify you’ll need to go through manual underwriting. The more assets you have, the less of a down payment you’ll need. The reason for this is that the bank considers you less of a risk if you already own more property. Conversely, you’ll want to avoid other significant expenses during this time period. If you’re spending more than you’re earning, your underwriter will want to know why.

4. Your Existing Debt

Your lender will want to know about any debt you currently owe. This includes car payments, credit card payments, and student loans. It also includes other liabilities, such as child support. These payments will affect how large of a mortgage you qualify for.

hash-markHow Long Does Manual Underwriting Take?

Manual underwriting can take anywhere from a few days to a couple of weeks. The time frame varies based on the lender, the underwriter, and how quickly you can provide any additional documentation they request.

Most of the time, you can expect manual underwriting to take at least a week. 

What Happens When They Decide?

After your lender has received all of the information they need and the manual underwriting process is complete, they will render a decision. They can approve your mortgage application, deny it, or approve it with conditions. If you’ve been approved, then you’re well on your way to closing.

If your loan has been approved with conditions, make sure to send in the required information immediately. The sooner the lender receives everything, the faster they’ll be able to approve your loan.

hash-markManual Underwriting Bottom Line

If you want to get a mortgage, but are self-employed or have less than perfect credit you will likely need to have a manual underwriter approve your loan. While manual underwriting can be time-consuming, it's a relatively straightforward process. Just be sure to answer all questions and submit any documents the underwriter requests, so that your mortgage can be approved.