In this article, we will be discussing and covering manual underwriting with extenuating circumstances and going over some common case scenarios. We will go over some of the recent manual underwriting with extenuating circumstances success stories at Gustan Cho Associates. Many of our clients contact us with general questions surrounding manually underwritten mortgage loans.

The underwriter examines the borrower’s income, debts, savings, and overall financial behavior in depth to gauge the true risk of lending.

Manual underwriting with extenuating circumstances is used in the lending industry, particularly in mortgage lending, to assess borrowers who don’t meet standard criteria due to exceptional circumstances. This process allows a human underwriter to evaluate a borrower’s loan application, considering factors that automated systems might overlook. Here’s a general overview:

What is Manual Underwriting?

Manual underwriting involves a person (an underwriter) reviewing and assessing the financial details provided by a potential borrower rather than relying solely on automated algorithms and credit scoring systems. This approach is particularly beneficial for individuals with different employment histories, credit histories, or financial situations.

Why Extenuating Circumstances Matter

Evaluation of how the borrower has recovered from or is managing the extenuating circumstances is crucial. This includes assessing current stability and future earning potential. Extenuating circumstances refer to unexpected or unusual conditions that significantly impact an individual’s financial standing or credit history, such as:

• Medical emergencies or significant health issues
• Natural disasters impacting financial stability
• Loss of employment due to economic downturns
• Death of a family member affecting household income

Documentation and Explanation: The borrower must provide thorough documentation and explanations for the extenuating circumstances. This could include medical bills, death certificates, or proof of unemployment benefits. In cases where credit history is sparse or affected by the circumstances, underwriters might look at non-traditional forms of credit, such as rental payment history or utility bills. Based on all gathered information, the underwriter decides whether to approve, deny, or require additional conditions for the loan.

Benefits of Manual Underwriting With Extenuating Circumstances

Provides a chance to secure financing for those affected by unusual circumstances. Offers a more human approach to understanding a borrower’s financial situation. Helps individuals whose automated systems might otherwise deny to receive loan approval. Manual underwriting with consideration for extenuating circumstances offers a lifeline for individuals facing unique challenges, ensuring that their cases are judged on their merits rather than just their numbers.

How Underwriters Process Manual Underwriting With Extenuating Circumstances

The truth is, no two manual underwrites are the same. It is up to the underwriter if they are able to approve your loan. We do have a basic cheat sheet on items that must be covered for FHA manual underwriting. VA manual underwriting is a bit more ambiguous. We encourage you to contact us with your specific scenario. Below we will go over a few recent success stories Gustan Cho Associates have recently funded on Manual Underwriting With Extenuating Circumstances.

VA Manual Underwriting With Extenuating Circumstances Scenario

A little over a week ago, we closed a VA Manual Underwriting With Extenuating Circumstances loan with a credit score of 512. The client was involved in two horrific car accidents in the past 12 months. Each time her vehicle was totaled and each time she was hospitalized. Since the vehicles were totaled, she was not making payments on the vehicles. Unfortunately, the creditor of the auto loan reported her late to each credit bureau.

How Underwriters View Late Payments in the Past 12 Months on Manual Underwriting

One 30 days late one 60 days late payment for the first vehicle and one 30 days late on the second vehicle. In this particular example, she was reported late for both totaled vehicles. Since she was also hospitalized, she had two small medical collections pop up. While medical collections do not matter as far as qualifying for a mortgage, they do heavily impact your credit score.

Manual Underwriting With Extenuating Circumstances on Derogatory Tradelines

The late payments on the auto loans and the recent medical collections were the reason for the 518 credit score. Before these two accidents, these clients’ credit was pretty solid. This client was turned down by a few different lenders before reaching out to Gustan Cho Associates. Why were we able to get the loan close?

Manual Underwriting With Extenuating Circumstances Require LOX

We are experts and manual underwriting with extenuating circumstances and view each case differently. The borrower was able to provide solid letters of explanation as well as documentation from each car accident. She had everything from the police report, the insurance paperwork, and auto loan information. Our underwriters were able to connect the dots and approve her file. She did have two months of mortgage reserves in the bank after closing and alow debt to income ratio. Even though her housing payment increase dramatically, we were still able to get the loan closed and even transfer her appraisal from the first lender.

Manual Underwriting With Extenuating Circumstances After Bankruptcy

Late payments after a Chapter 13 Bankruptcy are not always a deal-killer. Recently we had a client who has been discharged from their Chapter 13 Bankruptcy for three months. Anytime the discharge date is less than 24 months old, the loan will require a manual underwrite. This is why one of the most common lender overlays is a 2-year seasoning since the discharge date for chapter 13 bankruptcies.

What Are Overlays From Mortgage Companies

For more information on LENDER OVERLAYS, please click this hyperlink. This client was reported 30 days late on a charge card from a department store. She was able to provide documentation that shows she did pay on the 30th day but was still reported late as they did not post the payment until the following day. After further examination, the underwriter was able to approve the loan even though there was a 30-day late payment reported after the bankruptcy discharge. Most of the time, the underwriter likes to see that a borrower learned their lesson through chapter 13 bankruptcy and does not have late payments during the bankruptcy or after discharge. Since it was only one 30-day late the underwriter was comfortable signing off on this loan. This client called us after reading a previous blog and was more than happy when she closed on her new home!

Manual Underwriting With Extenuating Circumstances Can Often Get Done

There are very few situations Gustan Cho Associates has not come across before. When it comes to manual underwriting, documentation is key. As long as there is a story that makes sense with documentation to verify we have a good chance of getting your loan completed with a manual underwrite.

The underwriters at Gustan Cho Associates take a common-sense approach to mortgage lending. If we have the proper documentation and a letter of explanation to go along with it, we can usually get the loan closed.

Gustan Cho Associates does not have any lender overlays on all government and conventional mortgages. This includes FHA, VA, USDA, Freddie Mac, and Fannie Mae. We are experts in mortgage guidelines and sticky situations.

Start Mortgage Qualification and Pre-Approval Process Today

Even if you do not qualify today, we will put you on a financial plan to qualify as soon as possible. Our loan officers are trained experts in all aspects of mortgage lending. Many lenders no longer participate in manual underwriting mortgages. This is because it takes a separate skill set and underwrites experience. That is not the case at Gustan Cho Associates. We will go over your scenario before completing an application. Please reach out with any mortgage-related questions, call Mike Gracz on(800) 900-8569 or email gcho@gustancho.com. We are available seven days a week!