How Manual Underwriting Works, What to Expect

Get a Loan with No FICO Score

Woman paying utility bills on tablet
Those bills you pay every month can help you get a mortgage. Photo: JGI/Jamie Grill / Getty Images

If you're lucky enough to have a high credit score, plenty of income, and a healthy down payment, getting a home loan can be easy. Lenders can process your loan application relatively quickly for such home buyers, and mortgage lenders like for things to be easy. However, not everybody is so fortunate.

If you have thin credit, bad credit, or complicated earnings, computerized approval programs may be quick to decline your application. It’s still possible to get approved with manual underwriting, though. The process is slightly cumbersome, but it's a potential solution for borrowers who don't fit the standard mold.

Manual underwriting is a process of evaluating your ability to repay a loan. Instead of the decision being left to a computer algorithm, an individual or group of individuals will review your finances in detail to determine whether or not your application should be approved. 

Key Takeaways

  • If you have thin credit or bad credit, manual underwriting offers an alternative to computerized approval programs that may decline your application.
  • In manual underwriting, an individual or group of individuals will review your finances to determine whether your application should be approved.
  • To get your loan approved, you will need to show sufficient income, assets, or other resources to prove that you can handle the payments.
  • Plan for a slow and time-consuming process, as an actual person needs to go through each document you provide.

Why You Might Need Manual Underwriting

Automated systems are responsible for much of the decision-making when it comes to home loans. If you meet specific criteria, the loan is approved. For example, lenders are looking for credit scores above a certain level. If your score is too low, you’ll be declined. Likewise, lenders typically want to see debt-to-income ratios lower than 43%. However, “income” may be difficult to define, and your lender might not be able to count all of your income.

Computerized models are designed to work with the majority of borrowers and the loan programs they most often use. These automated underwriting systems (AUS) make it easy for lenders to process numerous loans while ensuring that the loans meet guidelines for investors and regulators.

For example, FHA loans require that mortgages fit a particular profile, and most people fit clearly inside or outside of the box. Lenders also might have their own rules that are more restrictive than FHA requirements.

If all goes well, the computer will spit out an approval. But if anything is amiss, your loan will receive a “refer” recommendation, and somebody will need to review your application outside of the AUS.

Factors Considered

Several factors might derail your mortgage application.

  • Debt-free lifestyle: The key to high credit scores is a history of borrowing and repaying loans, but some people choose to live without debt for simplicity and significant interest savings. Unfortunately, your credit eventually evaporates along with your interest costs. You don’t necessarily have bad credit—you have no credit profile at all. Still, it’s possible to get a loan with no FICO score if you go through manual underwriting. In fact, having no credit or thin credit can be better than having numerous negative items like bankruptcy or collections in your credit reports.
  • New to credit: ​​Building credit takes several years. If you have not yet established a robust credit profile, you may have to choose between waiting to buy and manual underwriting—which may even improve your credit. Adding a home loan to your credit reports can accelerate the process of building credit, because you add to the mix of loans in your credit files.
  • Recent financial problems: Getting a loan after bankruptcy or foreclosure isn’t impossible. Under certain HUD programs, you can get approved within one or two years after bankruptcy without manual underwriting. However, manual underwriting provides an additional option for borrowing, especially if your financial difficulties are relatively recent. Getting a conventional loan with a credit score below 640 is difficult, but manual underwriting might make it possible.
  • High debt-to-income ratios: It’s wise to keep your spending low relative to your income, but in some cases, a higher debt-to-income ratio makes sense. With manual underwriting, you might get approved with a higher-than-usual ratio. In many cases, that means you have more options available in expensive housing markets. Just beware of stretching too much and buying a costly property that could leave you “house poor.”

How to Get Approved

If you don’t have the standard credit rating or income profile to get approved, you need to use whatever you have available to show that you’re willing and able to repay the loan. To do so, you genuinely need sufficient income, assets, or other resources to prove that you can handle the payments.

In manual underwriting, somebody scrutinizes your finances, and that process can be frustrating and time-consuming. Before you start, make sure you really need to go through the process—see if you can get approved without manual underwriting. Take an inventory of your finances so you can discuss the requirements with your lender and get a head start on gathering the information they need.

  • History of payments: Be prepared to prove you’ve been making other payments on-time over the past year. Traditional credit reports show your loan payment history, but you need to demonstrate the same payment pattern using different sources. Large payments like rent and other housing payments are best, but utilities, memberships, and insurance premiums also can be helpful. Ideally, identify at least four payments you’ve been making on time for at least 12 months.
  • Healthy down payment: A down payment reduces your lender’s risk. It shows that you have skin in the game, minimizes your monthly payment, and gives lenders a buffer. If the lender needs to take your home in foreclosure, they’ll be less likely to lose money when you make a significant down payment. The more you put down, the better, and 20% often is considered a good down payment. With less than 20%, you also may have to pay private mortgage insurance (PMI).
  • Debt-to-income ratios: Approval is always easier with low ratios. Lenders prefer to see that your income can easily absorb a new monthly payment. Still, you might be able to use manual underwriting to get approved with high ratios, depending on your credit and other factors.
  • Government loan programs: Your chances of approval are best with government loan programs. For example, FHA, VA, and USDA loans are less risky for lenders. Remember that not all lenders offer manual underwriting, so you may need to shop around for a loan originator that does. Your lender also needs to work with the specific government program you’re looking at. If you get a “No,” there might be somebody else out there.
  • Cash reserves: Lenders want to be comfortable knowing you can absorb minor surprises like a failing water heater or unexpected out-of-pocket medical expenses. So, having cash available can help your chances at approval.

Compensating Factors

Compensating factors make your application more attractive, and they might be required for approval. These are specific guidelines defined by lenders or loan programs, and each one you meet improves your chances.

Depending on your credit score and debt-to-income ratios, you might need to satisfy one or more of these requirements for FHA approval:

  • Reserves: Liquid assets that can cover your mortgage payments for at least three months. If you’re buying a larger property (three to four units), you might need enough for six months. ​Money that you receive as a gift or loan cannot be counted as reserves.
  • Experience: Your payment (if approved) cannot exceed your current housing expense by the lesser of 5% or $100. The goal is to avoid dramatic increases ("payment shock") or monthly payment that you’re not accustomed to.
  • No discretionary debt: If you pay off your credit cards in full, you’re not really in debt, but you’ve had the opportunity to rack up debt if you wanted to. Unfortunately, a completely debt-free lifestyle does not help you there.
  • Additional income: In some cases, automated underwriting ignores overtime, seasonal earnings, and other items as part of your income. But with manual underwriting, you might be able to use that extra income as long as you can document the income and can expect it to continue.
  • Other factors: Depending on your loan, other factors might be helpful. In general, the idea is to show that the loan will not be a burden and that you can afford to repay it. Stability in your job never hurts, and more reserves than required can also make a difference.

Tips for the Process

Plan for a slow and time-consuming process. An actual person needs to go through each document you provide, and determine whether or not you qualify for the loan. Unfortunately, that takes time.

  • Lots of paperwork: Getting a mortgage always requires documentation. Manual underwriting requires even more. Some lenders will require as many as 12 months' worth of bank statements in addition to several years' worth of tax records, among other documents.
  • Homebuying process: If you’re making an offer, build in plenty of time for underwriting before closing. Include a financing contingency so that you can get your earnest money back if your lender denies your application. Your real estate agent can explain your options to you and can provide suggestions on how to present your offer. Especially in hot markets, you may be less attractive as a buyer if you require manual underwriting.
  • Explore alternatives: If manual underwriting is not successful for you, there may be other ways to get housing. Hard money lenders might be a temporary solution while you build credit or wait for negative items to fall off your credit report. A private lender, co-borrower, or cosigner also might be an option.
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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Consumer Financial Protection Bureau. "What Is a Debt-to-Income Ratio? Why Is the 43% Debt-to-Income Ratio Important?"

  2. U.S. Department of Housing and Urban Development. "Total Scorecard."

  3. U.S. Department of Housing and Urban Development. "HUD 4155.1 Chapter 4, Section C 4-C-1 Section C. Borrower Credit Analysis," Page 16-17.

  4. U.S. Department of Housing and Urban Development. "HUD 4155.1 Chapter 4, Section C 4-C-1 Section C. Borrower Credit Analysis," Page 12-13.

  5. Consumer Financial Protection Bureau. "What Kind of Down Payment Do I Need? How Does the Amount of Down Payment I Make Affect the Terms of My Mortgage Loan?"

  6. U.S. Department of Housing and Urban Development. "FHA’s Office of Single Family Housing Training Module," Pages 219-221.

  7. Rocket Mortgage. "What Is Manual Underwriting and How Does It Work?"

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