Applying for a mortgage or another kind of loan can feel like your entire financial life is under a microscope. Through a procedure called underwriting, the lender reviews factors such as your income and credit score to decide if you qualify for a loan.
When a mortgage application is manually underwritten, the application is reviewed by an underwriter, not an automated system, such as a program or software. The underwriter looks at the borrower's debt-to-income ratio, loan-to-value ratio, credit score and history, assets, liabilities, income, and employment.
Manual underwriting is generally used when an application would likely be denied through an automated system or if the borrower has some unusual circumstances but is otherwise qualified. Manual underwriting can be the key to obtaining a mortgage for borrowers with credit dings, a lot of debt payments, thin savings, or unusual finances.
When a lender uses manual underwriting for a loan application, a human underwriter reviews it instead of an underwriting software program. Manual and automated underwriting can each assess factors such as the borrower's credit history and income.
But with manual underwriting, the human underwriter can ask additional questions about any issues in the analysis. This may allow for a more holistic review of the application.
Lenders use automated systems to run mortgage loan applications as a first step and, if required, shift to manual underwriting or blended underwriting to work toward approval. You can also ask your lender to manually underwrite your loan if you feel your financial situation warrants it.
You have a non-traditional income
If you're self-employed and want your self-employment income added to your income calculation, you need to document it as a source of your cash reserves.
The 2022 conforming loan limit for most one-family homes is $647,200. Mortgage loans for more than the conforming limit are called jumbo loans.
These loans are risky for lenders because of their size, so if you apply for one, you can expect the lender to underwrite the loan manually, as they'll want to analyze your financial history in greater detail.
You have a poor credit history
A previous foreclosure, deed instead of foreclosure, or short sale might lead the AUS to reject your application. Likewise, a history of late debt payments or a low credit score puts you in a challenging position to get approved.
You have an insufficient credit history
Lenders like to see lines of credit — referred to in the industry as "tradelines" — because they show you've handled your debt over the last year or two.
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