What Is Manual Underwriting?

Quick Answer

Manual underwriting is a process that can help applicants with a thin credit file or low credit qualify for a loan. During manual underwriting, an underwriter goes through documents that verify your income and assets to determine if you're qualified to borrow.

Man in suit explaining manual underwriting to man and woman couple.

Getting approved for a mortgage requires you to meet some requirements for credit, income and money down. But if you have negative marks on your credit, don't have much credit history or have a complicated income situation, getting approved for a mortgage can be tricky.

Fortunately, it's possible to get approved through a process called manual underwriting. Manual underwriting is when a loan officer reviews your application by hand instead of using a computer program to automate the process. It involves a thorough review of your finances to determine whether you're qualified to borrow a loan.

How Manual Underwriting Works

Manual underwriting is a manual process that's slower than automated underwriting but a good alternative when you're likely to be denied by automated underwriting. During manual underwriting, a human underwriter reviews your application materials and determines the level of risk you pose as a borrower and whether the lender can qualify you for a loan.

This more flexible, human approach can be helpful when you're likely to be denied based on the rigid guidelines of automated underwriting, such as if you have high income and assets but a poor credit score.

Here are some reasons a lender might use manual underwriting to evaluate your application:

  • Thin credit file: This can happen when you have a limited history of borrowing and repaying loans, you're new to credit or you're living a debt-free lifestyle.
  • High debt-to-income ratio (DTI): If your monthly payments represent more than 36% of your income, lenders may see you as less likely to be able to manage additional monthly payments.
  • Negative credit history: Missed payments can be a red flag to lenders. Manual underwriting gives lenders the chance to determine whether your delinquent payments were caused by extenuating circumstances that don't reflect your typical habits with debt.
  • Bankruptcy or foreclosure: A recent bankruptcy or foreclosure in your credit history can cause an automated underwriting program to deny your application. But manual underwriters can consider your application to borrow based on human factors. For example, if a Chapter 7 bankruptcy or foreclosure was out of your control and you've shown an ability to manage your finances since, your application may be approved with a manual underwriting.

Manual Underwriting Requirements for a Mortgage

While requirements vary from lender to lender, these factors can impact whether you're likely to be approved through manual underwriting:

  • A large down payment: The median down payment for a home is around 13%, according to the National Association of Realtors. But for manual underwriting, a larger down payment can help you qualify—and reduce your monthly payments. Aim for at least 20% down for manual underwriting.
  • High cash reserves: If you have multiple months' worth of mortgage payments stashed away in a savings account, you'll look like you're well-prepared to manage payments, even in the event of an unexpected expense.
  • Low DTI: If you're turning to manual underwriting because you don't have much of a history with borrowing, then your low DTI should be in your favor. It'll be easier to get approved if you have low DTI, whereas a high DTI can make you look risky to lenders.
  • Proof of payment history: If you can prove that you have a strong history of paying debts or bills on time, that can help your application. Proving a history of paying rental, auto, insurance and utility payments on time for a year, for instance, can help your case.

Manual Underwriting vs. Automated Underwriting

Manual underwriting and automated underwriting are both processes that help mortgage lenders determine if you qualify for a home loan. Manual underwriting is distinct from automated underwriting, which is when a computer algorithm assesses factors such as your credit history, income and debt. Here are some ways manual underwriting can differ from automatic underwriting:

Timeframe for Approval

Manual underwriting can be a slower, more time-intensive process than automated underwriting. Be prepared to wait a while as a manual underwriter reviews your documents to determine your eligibility.

Documents Required

Manual underwriting requires that you submit documents to help the underwriter evaluate your credit, income, debt and assets.

Some of the documents you'll need for the manual underwriting process are the same as those you'll need for the automated underwriting process, but there's some additional paperwork you'll be asked to provide. These documents are to verify that you'll be able to repay a home loan, even if you have thin credit.

While specific loan and lender requirements vary, here's a list of what you can expect:

  • A review of your credit report and score, or of nontraditional credit sources such as your utilities, cellphone service and rental payments.
  • A review of your tax returns over the past two years.
  • Your pay stubs over the last 30-day period to verify your income and a letter of employment verification covering the last two years.
  • If you're self-employed, a review of tax and other financial documents that verify your business income.
  • If you have rental income, a review of tax returns showing the income.
  • Bank statements to verify your financial reserves.

Less-Competitive Offer

In a seller's market, anything you can do to make your application more attractive can be a deciding factor in winning out against competing offers. Unfortunately, the manual underwriting process is lengthy, and can make you less competitive than buyers who can get faster underwriting or make a cash offer.

The Bottom Line

Manual underwriting is a way a lender can determine if you're likely to be able to handle mortgage payments if your credit file is thin. If you're considering buying a home in the future, look at your credit now. Consider ways to build credit before you start the homebuying process.

Experian Boost®ø can help you get credit for the bills you already pay, including rent payments, utilities and some streaming services. That can help you build up your payment history and, among other good credit habits, your score can help you qualify for a mortgage down the line. Before you start, check your credit score for free through Experian.