Manual Underwriting: Why It Might Be the Key to Your Approval

If you’ve ever applied for a mortgage—especially an FHA loan—you may have come across the term “manual underwriting.”

It might sound intimidating, but understanding what it means could be the key to getting your loan approved, even when automated systems say no.

Let’s break it down so you know exactly what manual underwriting is, when it happens, and how to improve your chances of getting approved.

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What Is Manual Underwriting?

Most mortgage applications today are processed using an Automated Underwriting System (AUS). These systems analyze your financial information and quickly return a decision—usually either “approved” or “referred.”

When a loan gets a “refer” response, it doesn’t mean you’re denied. It means your file needs to be manually underwritten, which involves a real human reviewing your documents in more detail to make an informed decision.

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Why Would Your Loan Need Manual Underwriting?

Manual underwriting typically kicks in for FHA loans when something about your financial profile doesn’t meet the AUS criteria—or when specific red flags or triggers appear in your application.

Common Triggers:

• Disputed Negative Credit Accounts
  If you have collections or charge-offs totaling $1,000 or more.

• Recent Bankruptcy
  Chapter 7 or 13 bankruptcies filed in the last 2 years.

• Foreclosure or Short Sale History
  Includes deeds in lieu of foreclosure within the last 3 years.

• Late Mortgage Payments
  Specifically:

  • 3+ payments over 30 days late

  • 1 or more payments 60 days late (plus a 30-day late)

  • Any mortgage payment over 90 days late in the past 12 months

• Undisclosed Debt
  For example, an additional mortgage not listed on your application.

• Self-Employed with Irregular Income
  A 20%+ drop in income over the past few years requires deeper analysis.

• No Credit Score or Use of Alternative Credit
  Using rental history, utility bills, or phone payments instead of a traditional credit score.

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Does Manual Underwriting Mean I’ll Be Denied?

Not at all. It simply means your loan requires extra attention.

In fact, many borrowers with challenging financial histories get approved this way—it just takes a little more documentation and preparation. Here’s what you need to know:

What Manual Underwriters Look For:

• Complete income documentation

• Proof of consistent payments

• Lower debt-to-income (DTI) ratios

• Savings or cash reserves

• Strong employment history

• Explanations for any past financial issues

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How to Increase Your Chances of Approval with Manual Underwriting

Preparation is everything. If you suspect your loan might require manual underwriting, follow these tips:

1. Tell Your Lender Early

If any of the common triggers apply to you, inform your lender upfront so they can plan accordingly.

2. Be Ready with Extra Documentation

You’ll likely need to provide:

• Tax returns (especially if self-employed)

• Pay stubs

• Bank statements

• Rental history or utility bills (if using non-traditional credit)

3. Strengthen Your Financial Profile

• Pay down existing debts

• Avoid taking on new credit before applying

• Save up for a larger down payment or to boost your reserves

4. Maintain Clean Credit Behavior

If your credit history is patchy, recent on-time payments across all accounts can make a positive impression during the manual review.

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Manual Underwriting: The Bottom Line

Manual underwriting isn’t a bad thing. It’s simply an alternative path to mortgage approval—especially useful for borrowers who fall outside the box of automated systems. While it does require more time and documentation, it also opens the door for applicants with unique financial situations.

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Frequently Asked Questions

1. What does “manually underwritten loan” mean?

A manually underwritten loan means that instead of being approved by a computer system (automated underwriting), a human underwriter will personally review your financial documents to decide if you qualify for the loan.

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2. Why would my loan need manual underwriting?

Manual underwriting is triggered when:

• You have no credit score or use alternative credit

• You’ve had a recent bankruptcy, foreclosure, or short sale

• There are disputed credit accounts over $1,000

• You’ve had multiple late mortgage payments

• There’s a significant drop in your self-employment income

• An automated system returns a “refer” rather than an “approve”

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3. Does manual underwriting mean my loan is denied?

No, a “refer” or manual underwriting result does not mean denial. It just means your loan requires more detailed review and documentation to ensure it meets FHA or lender-specific guidelines.

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4. Is it harder to get approved with manual underwriting?

It can be slightly more challenging because the lender will require:

• More documentation

• Stronger compensating factors (e.g., savings, stable income)
  But with preparation and guidance, many applicants get approved through manual underwriting.

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5. What documents will I need to provide for manual underwriting?

You may be asked for:

• Pay stubs and tax returns (especially if self-employed)

• Bank statements

• Proof of rent payments or utility bills

• Letter of explanation for any past credit issues

• Documentation of any assets or reserves

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6. How can I improve my chances of getting approved?

• Pay down your existing debts

• Avoid applying for new credit before your mortgage

• Build up your savings for cash reserves

• Be honest and upfront with your lender

• Work with a loan officer experienced in manual underwriting