Manual Underwriting Guidelines On FHA Loans And VA Loans


This BLOG On Manual Underwriting Guidelines On FHA Loans And VA Loans Was UPDATED And PUBLISHED On September 7th, 2020

Manual Underwriting Guidelines
Gustan Cho Associates

Both VA Loans and FHA Loans can be manually underwritten when borrowers cannot get an approve/eligible per Automated Underwriting System.

  • One of the key factors that are very important on VA Manual Underwriting and FHA Manual Underwriting is that borrowers cannot have any late payments in the past 12 months
  • Also, verification of rent is required on all manual underwrites
  • There are certain instances where Gustan Cho Associates can make an exception for borrowers living with family
  • This is because they need to save for the down payment
  • All FHA Loans and VA Loans During and After Chapter 13 Bankruptcy are manual underwrites if the discharged of the 13 has not been seasoned for two years

In this article, we will cover and discuss Manual Underwriting Guidelines On FHA Loans And VA Loans.

Automated Underwriting Versus Manual Underwriting

The Automated Underwriting System is a sophisticated automated approval system that the majority of lenders use for the initial mortgage loan qualification for borrowers.

Most mortgage lenders favor the Fannie Mae version and not all mortgage lenders will go with LP Findings.

Automated Approval

The Automated Underwriting System is like a human brain.

The AUS analyzes the following information within a matter of seconds:

  • Borrower’s income
  • Assets
  • Credit
  • Credit history
  • Job
  • Job history
  • Debts
  • Liabilities
  • Front end debt to income ratios
  • Back end debt to income ratio
  • Prior bankruptcies
  • Judgments
  • Tax liens
  • Public records
  • Reserves
  • Current as well as past late payments and derogatory accounts

Within minutes of inputting the mortgage loan borrower’s information, the Automated Underwriting System yields a decision of the following:

  • Approve/eligible
  • Refer/eligible
  • Refer With Caution

What Are Key Manual Underwriting Guidelines

What Are Key Manual Underwriting Guidelines

The decision everyone expects is approve/eligible.

  • Mortgage Applications that get a referred/eligible, it means that the borrower is eligible for a mortgage loan but the AUS cannot render a decision
  • The file needs to go to manual underwriting which means it needs to be reviewed by an underwriter manually and it is up to the underwriter to render a decision based on the credit risks
  • Referred/ineligible means borrower does not qualify for a mortgage loan

These reasons can be waiting periods not being satisfied, too many late payments, or the borrower not meeting one or more mortgage lending guidelines.

Denied By Automated Underwriting System

Not too many lenders do manual underwriting nor follow manual underwriting guidelines:

  • Borrowers get denied by either Fannie Mae’s or Freddie Mac’s Automated Underwriting System, do not give up
  • There are lenders, like myself, that do many manual underwriting mortgage loans
  • Manual Underwriting does require more time and your mortgage application is more scrutinized
  • Manual underwriting mortgage loan’s mortgage rates are slightly higher due to the risk factor

Before a mortgage loan originator submits a mortgage application as a manually underwriting file, the mortgage loan originator will know whether the file will get approved or not.

Manual Underwriting: Process And Requirements

Mortgage applicants who get referred/eligible per automated findings, manual underwriting will be the only option to get a mortgage loan approval.

  • Manual Underwriting Guidelines require a 31% front end ratio debt to income ratio and 43% back end debt to income ratio
  • The manual underwriting underwriter can exceed the front and back end debt to income ratios as high as 40% front end debt to income ratios and 50% back end debt to income ratios
  • What is key to get a mortgage loan approval with a manual underwriting approval is compensating factors
  • Compensating factors are the advantages that the borrower has to offset the risk factor in the underwriter’s decision in approving the borrower’s mortgage loan

Reducing risk is the key in a mortgage loan approval.

Compensating Factors With Manual Underwriting Guidelines

  • High credit scores are key and a great compensating factor
  • Bigger down payments than the 3.5% down payment required is a strong compensating factor
  • The more money home buyer puts down on the home purchase, the less risk the mortgage lender has
  • Having at least 3 months reserves of principal, interest, taxes, and insurance is a huge compensating factor
  • Lower debt to income ratios are a major plus and reduces the risk for the mortgage lender
  • Rental verification if a strong compensating factor
  • The only way to verify rental verification is to provide the mortgage lender 12 months canceled checks unless they are renting a home from a registered property management company

Renters can get a letter from the property management manager stating that have been timely with paying rent for the past 12 months.

Manual Underwriting Mortgage Lenders

Manual Underwriting Mortgage Lenders

A substantial percentage of our business at Gustan Cho Associates Mortgage Group are manual underwrites. Home Buyers needing to qualify for FHA and/or VA Loans via manual underwriting with a direct lender with no lender overlays on government and/or conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at

  1. Janet Martin says

    I AM A RETIRED R,N LAST 3 YRS. I HAVE RAILROAD RETIREMENT AND V.A. retirement. $2,600 monthly. My Mother lives with me, has $1,500 monthy income. We pay $1,021 for a very nice apt. Pay rent on time the 1st of each month for two years we’ve been here. I have been in chapter 13 almost two years. Been on time each month. Credit score 578. Not great background. My lawyer said I should be able to get Trustee approval. What do you think?

    1. Gustan Cho, NMLS 873293 says

      Absolutely. Thank you for posting on our website. You meet all of the requirements. Please contact us at or call us at 262-716-8151 or text us for a faster response. What state are you in?

Leave A Reply

Your email address will not be published.

Call Now ButtonCALL NOW