45 million Americans have an invisible credit score, which complicates their ability to get a loan. Manual underwriting is a process that can help applicants with a thin credit to qualify for a loan.

Traditional loans can be challenging to get for Americans, but more than half of manual underwriting loans are approved. This flexibility helps borrowers who might otherwise be left out.

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When you want to initiate a loan, the lender will decide whether you qualify for the loan based on your information. In most cases, a computer program verifies the information and checks whether you can pay back the loan.

If you are self-employed, applying for a jumbo loan or Federal housing loan, then the algorithm will reject your application. This is where manual underwriting will come into the picture. 

Manual underwriting is a process where the lender manually underwrites and reviews the loan application. The lender looks at factors like the debt-to-income ratio, credit score, assets, liabilities, etc.‍

Lenders usually underwrite a home loan when automatic underwriting becomes difficult. Below are some scenarios where lenders start underwriting home loan.

1. No credit history: If you don’t have a credit score, then a manually underwritten loan is a great option to get a mortgage. The no credit score loan can be approved without any metric necessitated for a loan approval.

2. Minimal credit history: If you don’t have a long credit history, then the automated system will not allow you to make decisive decisions on your creditworthiness.

3. High debt-to-income ratio: If you have a high DTI, you will usually not qualify. If you can get the manual underwriter proof of how you can pay off the loan, they can approve it.

4. Have a foreclosure or bankruptcy on record: Having a bad record on credit makes it difficult to get automated loans. A lender may underwrite your loan if you have a strong source of income and put in a large down payment.‍

A manual underwriting is similar to an automated underwriting. The only difference is that the underwriting mortgage process will take more time and more questions from the lender. Let us look at how it works below:

• Document submission: The lender will ask for financial documents, such as bank statements, pay stubs, tax returns, or investment account statements. You’ll also be required to provide proof of employment and verification of your assets.
• In-depth review: The lender will look into the documents and check your overall financial profile. They are likely to scrutinize your payment history, check for any debts, income stability, and your ability to make mortgage payments.
• Open communication: The underwriter will examine your information and ask questions. This is a standard part of the process and try to answer the questions truthfully.
• Receive a decision: This is the final stage of manual underwriting mortgage loans, where the lender denies or approves your application.‍

There are different types of underwriting processes based on the type of loan you are applying for:

• Conventional loans: A conventional loan needs to meet the requirements of the Federal Housing Finance Authority (FHFA). This allows government-backed enterprises like Freddie Mac and Fannie Mae to buy in the secondary mortgage market. Typically, they use automated underwriting, but some exceptions allow for a manual process.
• Jumbo loans: Jumbo loans are non-conforming, so they are lenient towards regulations. This is why jumbo loans are common for manual underwriting, especially those for large amounts.
• Government-backed loans: Most government loans follow automatic underwriting, but manual underwriting is permitted or required in some cases. For example, FHA manual underwriting guidelines require applicants to have a credit score below 620 with a DTI ratio exceeding 43%.‍

Here are the differences between manual and automated underwriting.