Manual underwriting criteria refer to the detailed factors a human underwriter examines when evaluating a loan application that an automated underwriting system (AUS) cannot fully approve. While AUS quickly assesses applications based on rigid rules involving credit scores, debt-to-income ratios, and basic income verification, manual underwriting provides a more personalized review.
In this process, the underwriter examines your complete financial story, including credit history context, stable and documented income sources, cash reserves, and compensating factors—positive financial attributes that offset perceived risks. For example, a recent medical emergency causing a late payment may be overlooked if you’ve maintained consistent, on-time payments otherwise.
Manual underwriting is especially important for borrowers with nontraditional circumstances, such as self-employment, gig work, thin credit files, or recent financial hardships. It allows lenders to consider documents like tax returns, year-to-date profit and loss statements, letters of explanation, and employment history in greater detail.
Lenders may also evaluate cash reserves, measured in months of mortgage payments you can cover after closing costs, which demonstrate your ability to handle unexpected expenses. Compensating factors such as a large down payment, steady employment history, or a mortgage payment comparable to your current rent may improve your chances of approval.
This approach is common with government-backed loans like FHA, VA, and USDA loans and can take days or weeks, unlike the minutes automated systems typically require. Manual underwriting does not impact your credit score, as only the initial loan inquiry affects it.
Understanding manual underwriting criteria is critical if your financial profile doesn’t fit traditional molds. It gives you the opportunity for loan approval through a comprehensive human review rather than a quick algorithmic decision.
For more on automated processes, see our article on Automated Underwriting System (AUS) and for more on overall Underwriting Guidelines.
Sources:
- Consumer Financial Protection Bureau, What is underwriting?
- Fannie Mae, Manual Underwriting Guide
- NerdWallet, What Is Manual Underwriting for a Mortgage?
- Investopedia, Manual Underwriting of Mortgages