FHA TBD Manual Underwriting Guidelines As Pre-Approvals

This ARTICLE Is About FHA TBD Manual Underwriting Guidelines As Pre-Approvals

There Are Many Benefits Of FHA TBD Manual Underwriting Guidelines As Pre-Approvals for borrowers with bad credit or those who are considered marginal borrowers. At Gustan Cho Associates we are constantly expanding programs we offer to our clients. We are excited to announce updates to our “To Be Determined” underwriting process. We are able to “TBD” underwrite manually underwritten mortgage loans. GCA Mortgage specializes in FHA and VA manual underwriting. We now have the ability to underwrite your file before you put an offer on a property.  We will detail and explain how manual underwriting works and the mortgage process on our TBD process for manually underwritten loans.

In this article, we will discuss and cover FHA TBD Manual Underwriting Mortgage Guidelines.

What Does FHA TBD Manual Underwriting Mean?

First, it is important to understand what a manual underwrite means. All lenders follow the same guidelines, although some lenders add additional LENDER OVERLAYS, Gustan Cho Associates does not. We go off the agency guidelines and nothing further. When completing your automated underwriting system, the algorithm will determine your risk and qualifications based on the items you provide combined with your credit report.

The automated underwriting system will factor in payment history, credit score, income, and assets/ reserves to calculate your qualifications There are a few different responses the automated underwriting system will produce. The best possible outcome is called approve/eligible. This means based on the information provided, your file an automated approval and is eligible for sale on the secondary market. Hence the terms, “approve” and “eligible”. For more on AUS, see our AUS BLOG.

Manual Underwriting Due To The Automated Underwriting System

The second-best outcome is referred/eligible. The first word refer means you need to downgrade this file to a manually underwritten loan. Eligible still stands for being eligible for sale on the secondary market. Manual underwriting is when an underwriter needs to go through your file with a fine-tooth comb. The underwriter makes sure you qualify based on manually underwriting guidelines, which are more strict with income ratios and reserve requirements.

Your AUS may receive refer/ineligible report. Once again, the first word “refer” means you may manually underwrite this loan, it did not get an automated approval. However, the second word “ineligible” means this loan is ineligible for sale on the secondary market and the lender cannot close this file. The second word must say “eligible” in order to qualify. If the loan is not eligible for sale on the secondary market, it means the file does not meet agency guidelines.

Case Scenario On Manual Underwriting

For the purpose of this blog, we will focus on refer/eligible manually underwritten files. We do not expect you to know the automated underwriting system terminology. However, if you have been turned down by your current lender, it is a good idea to have them send you your AUS report. This will give us insight into what is holding back your qualifications. Below are a few tips for passing manual underwriting guidelines.

Keys for FHA manual underwriting:

  • Down Payment: Credit scores 500 – 579 need at least a 10% down payment
  • Credit scores 580 and higher need at least a 3.5% down payment
  • Gift funds are allowed for the down payment and gift funds
  • However, gift funds are not viewed favorably by mortgage underwriters

Importance of on-time payments:

  • Installment debts and housing payments must be current
  • You cannot have any 30-day late payment in the previous 12 months and no more than 2×30 day late payments in the previous 24 months
  • If you were more than 30 days late in the past 24 months, you need to wait until that late payment is seasoned
  • Installment debt includes auto payments, personal loans, and student debt
  • The installment account has the same payment every month
  • So, you know what to pay, this is the reason guidelines are not lenient installment that payments
  • When you take out an installment loan, you know what your payment will be every month
  • This should allow you to budget accordingly

Revolving accounts:

  • No major derogatory payments on revolving credit cards in the past 12 months
  • A major derogatory payment is defined as 1×90 daily payment, or 3×60 day late payments


  • You may not have any non-medical collections in the past 12 months
  • Any recent collections will disqualify you from passing a manual underwrite

Outstanding collections and charged-off accounts do not have to be paid to qualify for an FHA loan.

Documents Required To Start The Mortgage Process

What documents are required to start the mortgage process

Documentation is key for manually underwritten loans. A verification of rent will be completed to make sure your housing payments are on time. If you rent from a large management company, we can verify your payment history through them. If you rent from a small landlord or a family member, we will need to see 12 canceled checks showing on-time payment history for your rental. An underwriter is responsible to cover all bases. For example, if you are in mortgage modification, the underwriter must verify at least 12 on-time payments to be modified agreement.

Credit Disputes During The Mortgage Process

Disputed accounts on your credit report will stall the process:

  • If you are disputing accounts totaling $1000 or more, you must call the credit bureaus and remove the verbiage dispute
  • All non-medical collections will use a 5% monthly payment
  • That is 5% of the total monthly balance
  • Even with the manually underwritten long, charge-offs do not count against your debt to income ratio
  • Just like any FHA loan, the same waiting period stands for derogatory credit

Your case number must be assigned after the waiting period for all events such as a foreclosure, short sale, deed-in-lieu, Chapter 7, or Chapter 13 bankruptcy.

Waiting Period After Bankruptcy, Foreclosure, Late Payments

Waiting Periods:

  • Foreclosure, short sale, deed-in-lieu – 3 years from the date the property is transferred out of your name (see county records for exact date)
  • Chapter 13 bankruptcy – eligible after you have made at least 12 on-time payments to the trustee, NO WAITING PERIOD AFTER DISCHARGE
  • Chapter 7 bankruptcy – 2 years after discharge

Nontraditional Credit Tradelines

Nontraditional credit tradelines can be applied for manually underwritten files.

For more information please see our blog on NON-TRADITIONAL CREDIT.

As mentioned above, when manually underwriting an FHA loan, there is a more strict debt to income and reserve requirements. If you are going to have your debt-to-income ratios above 31/43, you must have compensating factors. Those compensating factors include verified cash reserves, minimal increase in housing payment, residual income, and significant additional income not reflected on your mortgage application.

FHA TBD Manual Underwriting DTI Guidelines

DTI limits for manual underwriting based on credit scores:

  • No credit score – 31/43
  • 500 – 579 – 31/41
  • 580 and above – 31/43 (with no compensating factors)
  • 580 and above – 37/47 (with one compensating factor)
  • 580 and above -40/40 (with no discretionary debt)
  • 580 and above – 40/50 (with two compensating factors)

FHA TBD Manual Underwriting Reserve Guidelines

What are the FHA TBD guidelines for manual insurance reserves

Reserve requirements for manually underwriting:

  • 1 – 2 unit properties -1 month of PITIA (Principal, interest, taxes, insurance, and any association dues)
  • 3 – 4 unit properties -3 months of PITIA (Principal, interest, taxes, insurance, and any association dues)

When using reserves for a compensating factor, you need to verify more funds

  • 1 – 2 unit properties -3 months of PITIA (Principal, interest, taxes, insurance, and any association dues)
  • 3 – 4 unit properties -6 months of PITIA (Principal, interest, taxes, insurance, and any association dues)

It is important to understand that reserve funds stay in your bank account. However, they are an underwriting requirement in case something catastrophic pops up like you lose your job. This will give you some time to get back on your feet and not fall behind on mortgage payments.

Selecting An Expert Lender On FHA TBD Manual Underwriting

If you are not in the mortgage industry, you are probably confused by this overload of information. That is why we are here. We are the experts in manual underwriting. Once we have your completed application and documentation, we will send your file directly to an FHA underwriter. They will underwrite your credit report and assets and issue a true PRE-APPROVAL. This will allow you to shop for a home with confidence.  once you find your dream home, we will order the appraisal and title report and ask for a few updated documents. The process will be quick and easy, and we can close in as little as three weeks. To discuss your TBD underwriting qualifications, please call Mike Gracz on 630-659-7644. You can also email Mike at [email protected].

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