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FHA Manual Underwriting

May 14, 2019 — 4 min read

The housing and mortgage lending industries both gained unprecedented efficiencies in the technology era. Potential buyers can watch 360-degree videos of homes and even secure a mortgage online using most electronic devices. However, despite all of these e-advancements, the "old school" practice of manual underwriting is actually making a comeback.

What You Should Know About Manual Underwriting

Baby boomers and Gen X clients are used to a full-document loan application process. But for Millennials and younger homebuyers, manual underwriting will likely seem cumbersome. Instead of rapid online approval, the process includes a human underwriter scrutinizing the application and determining a person's ability to repay the debt. For example, pay stubs, W-2's, tax returns, bank statements, and other documents may be assessed in determining whether you are reasonably able to make on-time payments. If the underwriter concludes that your overall loan profile meets the requirements, the loan moves forward similar to other processes.

When Does Manual Underwriting Occur?

The Federal Housing Administration (FHA) recently updated the way that it assesses mortgage risk. According to reports, revisions to the FHA's Technology Open to Approved Lenders (TOTAL) Mortgage Scorecard system will flag certain loan applications for manual underwriting automatically. Despite this change, it's important to note that a manual underwrite is not a decline. Manually underwritten loans just go through a more in-depth process. Approximately 4-5 percent of FHA loans assigned after March 17 are expected to be placed in the manual underwriting track moving forward. The majority of FHA loans will still fall under TOTAL Scorecard approval unless the application triggers the system based on risk factors such as the following.

Cash Lifestyles:

People like to say, "cash is king," until they need a high credit score. Although it seems like the most responsible choice, a debt-free lifestyle tends to leave even people with excellent cash flows in a tight credit score spot. Lacking sufficient credit history to generate a score will trigger a manual underwriting referral with the FHA.

Financial Shortfalls:

Following a financial problem such as bankruptcy or foreclosure, getting a mortgage approval may be difficult. You will have to meet requirements for a waiting period after significant derogatory credit events. If you have satisfied the seasoning requirements, a manual underwrite may lead to a loan approval in situations where an automated approval would still be off the table.


The amount of total debt you have in comparison to your overall income is your debt-to-income ratio. Although this factor has a bearing on FHA approval, manual underwriting administrators may balance the ratio against other factors that support approval. In some cases, home loans can be approved at ratios of 40-50 percent. It's important to keep in mind that a referral for manual underwriting review does not necessarily result in a rejection. However, your application could be walking a thin line, and it will be in your best interest to work with your Mortgage Advisor to demonstrate an ability to pay.

Compensating Factors

There are certain items that can make your mortgage application appear more attractive and garner approval. Such items may "compensate" for the reasons it was initially flagged for review. For example, these are factors that may tip the scale in your favor.
  • Cash Reserves: Having enough liquid assets to cover three or more months of payments.
  • Zero Discretionary Debt: Paying off all of your credit cards and other discretionary debt each month demonstrates a solid credit history as well as an improved ability to repay a mortgage.
  • Extra Earnings: A manual underwriter may be able to include additional income, such as bonuses, seasonal pay increases, and overtime.
If your Mortgage Advisor says your application received an FHA referral for manual underwriting, you shouldn't panic. Although it may seem cumbersome, a manual underwrite could prove a valuable method for loan approval.

Do you have questions about FHA Manual Underwriting requirements? For those and all other mortgage questions, fill out the form below or contact us today!

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