This blog delves into the guidelines for manual underwriting with late payments concerning VA and FHA loans. To qualify for manual underwriting on FHA and VA loans, timely payments within the past 24 months are imperative.
Gustan Cho Associates may consider exceptions for borrowers with one or two late payments within the past 24 months, provided extenuating circumstances are beyond their control. This leniency is particularly notable in VA loans compared to FHA loans. Documentation of extenuating circumstances, such as hospital and medical records, is necessary. The article will thoroughly explore manual underwriting with late payments within the past 24 months for FHA and VA loans.
Mortgage Programs That Allow Manual Underwriting
Manual underwriting with late payments is permitted for FHA and VA loans.
Individuals who cannot obtain approve/eligible through the automated underwriting system (AUS) still have the opportunity to qualify through manual underwriting. To be eligible for manual underwriting with FHA and VA loans, borrowers must receive a refer/eligible status from the AUS.
Do All Lenders Do Manual Underwriting?
It’s rare for lenders to use manual underwriting with late payments. Typically, borrowers need to have made on-time payments in the last 24 months. However, Gustan Cho Associates provides this option if borrowers show they faced special circumstances. This blog will discuss the FHA and VA rules for manual underwriting with late mortgage payments.
Late Payments? You Can Still Get Approved
Manual underwriting looks beyond your credit score. We help borrowers with recent late payments qualify for home loans.FHA And VA Manual Underwriting Guidelines
The FHA and VA guidelines for manual underwriting closely resemble each other. In cases where the automated underwriting system designates a file as refer/eligible for FHA or VA loans, it can be reassigned for manual underwriting.
Manual underwriting is not a service offered by all lenders. Gustan Cho Associates stands out among national lenders for its lack of overlays and expertise in VA and FHA manual underwriting. Files approved through manual underwriting are as valid as those approved through automated processes.
How Mortgage Underwriters Review Manual Underwriting Borrowers
The mortgage underwriter carefully checks the file and does manual underwriting with a keen eye. They verify that borrowers meet all the mortgage rules required by HUD and VA. Most lenders do not allow manual underwriting if there have been late payments, often refusing any late payments from the past 24 months.
Timely Payments After Bankruptcy and Foreclosure
There are no late payments after bankruptcy, foreclosure, deed-in-lieu of foreclosure, or short sale.
The great news is Gustan Cho Associates will allow Manual Underwriting With Late Payments if it is just one or two late payments in the past 24 months. Borrowers will need proof they had extenuating circumstances.
How Does The Automated Underwriting System Work?
The automated underwriting system (AUS) helps lenders assess mortgage applications. Loan officers enter borrowers’ information, such as credit scores and income details, into the system. The AUS then makes one of the following decisions:
- Approve/Eligible: This means the borrower has received an automatic approval.
- Refer/Eligible: The AUS could not make a decision, so the application will need to be reviewed manually by a human underwriter.
- Refer/Caution: This decision indicates a denial.
These steps summarize the mortgage underwriting process.
Types of Automated Underwriting Systems
There are two types of automated underwriting systems. Fannie Mae’s Desktop Underwriter (DU) or Desktop Originator (DO) is more commonly used by lenders.
The second AUS used is Freddie Mac’s Loan Prospector (LP). Sometimes, borrowers may not get a Fannie Mae AUS approval but may get a Freddie Mac AUS Approval. Not all lenders are Freddie Mac Approved. Gustan Cho Associates are both Fannie Mae and Freddie Mac-approved lenders.
General FHA and VA Manual Underwriting Guidelines
FHA and VA Manual Underwriting Guidelines are pretty similar. VA Loans do not impose a maximum limit on debt-to-income (DTI) ratios for automated approvals. However, the maximum DTI for VA Loans on manual underwrites—without compensating factors—is 41%. With two or more compensating factors, the DTI can go up to 55% for VA manual underwrites.
For HUD, the acceptable DTI ratios are 31/41 with no compensating factors, 37/47 with one compensating factor, and 40/50 with two compensating factors. It is important to have a history of timely payments over the last 24 months.
Manual Underwriting With Late Payments: Importance of Low Payment Shock
All manual underwrites require verification of rent. However, Gustan Cho Associates does not need rental verification if the borrower lives rent-free with a family member. In this case, Gustan Cho Associates will provide a rent-free letter that a family member must complete to confirm this arrangement.
The Importance of Timely Payments in the Past 24 Months on Manual Underwriting
Timely payments in the past 24 months with no late payments. One month’s reserves for one and two-unit properties three and four-unit properties require three months’ reserves.
Reserves are one month of principal, interest, taxes, and principal (PITI). Reserves cannot be gifted. It needs to be the borrowers’ own funds. Compensating factors are important for borrowers with late payments in the past 24 months or those with a high debt-to-income ratio.
Late Payments Won’t Stop Us From Getting You Home
We work with lenders that allow manual underwrites with flexible guidelines—even if you’ve had credit hiccups.Manual Underwriting With Late Payments: Importance of Compensating Factors
Compensating factors play an important role for borrowers with late payments in the past 24 months and those with high debt-to-income ratios. The following factors are considered compensating factors by mortgage underwriters:
- Larger down payment
- Three or more months of reserves
- Part-time income or other income that has been seasoned for 12 months or more but not used to qualify for an income
- History of job promotions and the borrower getting more training and education to further their career.
- History of saving money and lower credit utilization ratio on revolving accounts
- The working spouse who is not on the loan
- Job longevity on the same job and same field of employment
Manual Underwriting With Late Payments: FHA And VA Guidelines after Bankruptcy and Housing Event
Homebuyers can qualify for FHA and VA loans after bankruptcy, foreclosure, deed in-lieu-of foreclosure, or short sale. There is a mandatory waiting period to qualify.
HUD requires a two-year waiting period after Chapter 7 Bankruptcy to qualify for FHA loans. HUD mandates a three-year waiting period after foreclosure, deed in lieu, and short sale to qualify for FHA loans.
VA Manual Underwriting Guidelines
VA requires a two-year waiting period after Chapter 7 Bankruptcy, foreclosure, deed-in-lieu of foreclosure, or short sale to qualify for VA loans. Homebuyers can qualify for VA and FHA loans during the Chapter 13 Bankruptcy repayment plan via manual underwriting. Need trustee approval. Chapter 13 Bankruptcy does not need to be discharged.
There is no waiting period to qualify for VA and FHA loans after the Chapter 13 Bankruptcy discharge date. Any FHA and VA loans without a two-year seasoning after the Chapter 13 Bankruptcy discharge date must be manually underwritten.
Qualifying For VA And FHA Manual Underwriting With Late Payments
Manual Underwriting With Late Payments is possible if borrowers have extenuating circumstances. Borrowers who died in the family, had major health issues, or suffered job loss can potentially qualify for VA and FHA Manual Underwriting With Late Payments. Please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response to discuss your case scenario. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
FAQs: Manual Underwriting With Late Payments Mortgage Guidelines
Q: What is the Significance of Timely Payments for Manual Underwriting with Late Payments on FHA and VA Loans?
A: To qualify for manual underwriting on FHA and VA loans, borrowers must have made timely payments within the past 24 months. This requirement is imperative for eligibility.
Q: Are Exceptions Made for Borrowers with Late Payments Within the Past 24 Months?
A: Gustan Cho Associates may consider exceptions for borrowers with one or two late payments within the past 24 months, provided they can demonstrate extenuating circumstances beyond their control. Documentation of such circumstances, like hospital or medical records, is necessary.
Q: How Does Manual Underwriting with Late Payments Differ Between VA and FHA Loans?
A: While both FHA and VA loans allow manual underwriting with late payments, VA loans tend to offer more leniency in such cases compared to FHA loans. However, borrowers must still adhere to specific documentation requirements and lender policies.
Q: Do All Lenders Offer Manual Underwriting with Late Payments?
A: No, it’s uncommon for lenders to engage in manual underwriting with late payments. Gustan Cho Associates stands out for offering this service, particularly for FHA and VA loans, with considerations for extenuating circumstances.
Q: How do Mortgage Underwriters Review Manual Underwriting Borrowers?
A: Mortgage underwriters meticulously review files, ensuring borrowers meet all mortgage guidelines. Most lenders disallow manual underwriting with late payments, typically within the preceding 24 months.
Q: What are Compensating Factors, and Why are They Important?
A: Compensating factors play a crucial role for borrowers with late payments or high debt-to-income ratios. These factors include a larger down payment, substantial reserves, job stability, and other financial strengths that offset perceived risks.
Q: What are the Waiting Periods After Bankruptcy or Foreclosure to Qualify for FHA and VA Loans?
A: For FHA loans, HUD mandates a two-year waiting period after Chapter 7 bankruptcy and a three-year waiting period after foreclosure, deed in lieu, or short sale. VA loans typically require a two-year waiting period for similar events.
Q: How Can Borrowers Qualify for Manual Underwriting with Late Payments Due to Extenuating Circumstances?
A: Borrowers facing extenuating circumstances such as family deaths, major health issues, or job loss may potentially qualify for manual underwriting with late payments. Contact Gustan Cho Associates to discuss individual case scenarios and eligibility.
Q: What Steps Should Borrowers Take to Apply for Manual Underwriting with Late Payments?
A: To explore eligibility for manual underwriting with late payments, borrowers can reach out to Gustan Cho Associates via phone, text, or email. The team is available seven days a week to assist with inquiries and provide guidance on the application process.
This blog about “Manual Underwriting With Late Payments Mortgage Guidelines” was updated on June 30th, 2025.
