What is Manual Underwriting?

Sarasota is a world renowned destination, most particularly because of its sheer beauty and its first-class white sand beaches. It’s a place that has much to offer, with plenty of recreational opportunities, such as golfing, tennis, boating, biking, fishing, sailing, sunbathing, and a lot of entertainment and shopping. Because Sarasota is located in a prime spot on the Florida peninsula, it’s a place that’s constantly growing, with new master-planned communities and an array of waterfront communities.

Finding a home in the area and living in its sub-tropical climate is appealing to many people. Because of its alluring weather, the west coast is one which consistently greets people relocating from all over the country, and even foreign buyers. The challenge for some is having the credentials, meaning the credit, to apply for a home loan. Getting a mortgage is usually associated with having a high credit score, but that’s not always the case.

For those who are relocating from another country, their credit profiles don’t necessarily follow. Others wanting to purchase a home might not use credit frequently or hardly at all. This presents a real problem because without a demonstrable credit history, lenders can’t “qualify” applicants for a mortgage. However, there are alternatives, and one such loan process is what’s known as manual underwriting.


Mortgage lenders certainly do not wish to refuse business. Home loans, just like many other financials, generate revenue for banks, mortgage companies, and credit unions. The interest paid over the life of these loans adds-up to thousands of dollars. A loan product that’s available to some applicants, particularly those with scant credit history, is a manually underwritten loan. These mortgages, like many others, are backed by the Federal Housing Authority, and FHA sets the requirements for applicants.

“A high FICO score can certainly make getting a mortgage easier — but the trade-off isn’t worth it if car loans and credit card payments limit your ability to save. And with FHA loans available to first-time buyers, you only need a credit score in the 600 range — which you can acquire pretty easily with very occasional credit use. And if you don’t have enough of a credit history, the FHA can look at other factors (utility bills, etc.), as can some credit unions.” —Daily Finance

Essentially, manual underwriting is qualifying mortgage applicants through means other than just their discretionary debt (read: credit). When consumers borrow money, it’s at their discretion to do so, be it credit cards, car loans, or student loans. Repaying borrowed money in a timely manner and keeping their debt-to-income ratio below a certain percentage is what increases credit scores. When a home loan applicant does not have much of a credit history, lenders can use manual underwriting to approve a mortgage.


Qualifying for manual underwriting is something that’s done within defined guidelines. FHA generally requires borrowers to have a credit score of at least 580, and to have a debt-to-income ratio of no more than 43, and, a housing-to-income ratio of no more than 31 percent. However, there are what’s known as “compensating factors” which help to determine eligibility and approval. These factors are in-place to help applicant approval. Here are those compensating factors:

  • Cash reserves. This is the money an applicant will have left over after the purchase of a home. It includes money in checking, savings, money markets, and more. It also includes retirement accounts and investments. Any investments included must be accessible to the applicant. So, if you have a pension, 401(k), 403(b), or IRA, you’ll be required to show proof of access to those funds in order for these to be included in the count of your cash reserves.
  • Down payment. Lenders really like applicants who make a significant contribution to their mortgages and down payments are a large compensating factor. Though manual underwriting through FHA only requires a down payment of 3.5 percent currently, putting down 10 percent or more will be a very big contribution to being approved for a mortgage. A down payment of 10 percent or more also means not having to purchase PMI or private mortgage insurance.
  • Payment shock. This factor is used to demonstrate that demonstrates an applicant’s ability to make a monthly mortgage payment. Whether you rent or own right now, if your new home loan obligation isn’t much different that your current monthly rent or mortgage, this shows your ability to pay on time. Lenders typically go back 12 months to see your housing and discretionary debt payments have been made on time.
  • Income not counted. This includes child support, alimony, and income received from a second job or self-employment for more than two years. This compensating factor depends on the lender and your ability to provide proof.
  • Job stability. Every lender uses job stability as a factor in approving a mortgage and this instance is no different. The longer you’ve been working for the same company, the better. Another compensating factor is wage or earnings increases in the future.