Manual underwriting means a person, not software, approves the loan: an underwriter reads the pay stubs, bank statements and credit report and holds the numbers against the program's written limits. It takes more paperwork and the ratio caps are lower, yet FHA, VA, USDA and Conventional all keep this road to closing open.
What sends a loan to a person
- The automated underwriting system returns a Refer.
- The buyer has no credit score, so the lender builds a history from rent, utility and insurance payments.
- Something on the credit report needs a human judgment the software can't make.
- Information changes after an automated approval and the lender has to downgrade it.
The limits by program
| Program | Housing limit | Total limit |
|---|---|---|
| FHA, score 580+, no compensating factors | 31% | 43% |
| FHA, one compensating factor | 37% | 47% |
| FHA, two compensating factors | 40% | 50% |
| FHA, score below 580 or no score | 31% | 43% |
| Conventional (Fannie Mae) | None | 36%, up to 45% with qualifying credit and reserves |
| USDA | 29%, or 32% with a waiver | 41%, or 44% with a waiver (every applicant at 680 or higher, plus a compensating factor) |
| VA | None | 41% guideline, residual income decides |
A Refer on $4,500 a month
A buyer earning $4,500 a month gross with $300 in monthly debts gets a Refer on FHA. The largest house payment is the lower of the housing cap or the total cap minus the debts:
- No factors: housing cap $1,395 (31%); total cap $1,935 (43%) minus $300 is $1,635. The limit is $1,395.
- Two factors: housing cap $1,800 (40%); total cap $2,250 (50%) minus $300 is $1,950. The limit is $1,800.
Proving two compensating factors raises the payment this buyer can carry by $405 a month. For comparison, an automated Accept at 46.9% would allow $2,110.50, which is why the first move after a Refer is often to change an input and run the findings again.
What the underwriter will ask for
- Twelve months of housing payment history, through canceled checks, bank statements or a landlord's verification
- A letter explaining any late payments, collections or gaps in work
- Reserves: FHA requires 1 month of payments in savings after closing on a 1 or 2 unit home, and 3 months on 3 and 4 units
- Full asset statements, with any large deposit traced to its source
Handing these over at application, before the underwriter asks, saves days on a manual approval.
Check where your ratios land in the DTI calculator. If your loan came back as a Refer somewhere else, call AAA Capital Funding at 888-601-8344 and we'll show you which manual tier you qualify for and what moves you up.