Agent showing young couple new home.

What Is Manual Underwriting And How Does It Work?

7-minute read

May 16, 2021


Underwriting is the step in the mortgage process when your lender decides whether you qualify for a loan. There are two ways that a lender can underwrite your loan: automatically or manually. You might be able to increase your chances of getting a loan with manual underwriting if you have a unique financial situation.

We’ll take a look at some of the differences between manual and automated underwriting. We’ll also show you what your lender looks at during manual underwriting and when they might use a manual process.

Manual Underwriting Vs. Automated Underwriting

When you initiate your mortgage application, your lender decides if you qualify for a loan by looking at your information and deciding whether you’re likely to pay it back. In the majority of cases, the decision is made by a computer program – not a human being.

Automated underwriting uses a computer algorithm to underwrite your loan. The algorithm takes your information and uses it to decide whether your data meets the lender's minimum standards. With just a small amount of inputted information (like your Social Security number and address) the computer can learn about your finances. The automated system compares your credit score, debt and other factors to the requirements and guidelines of the loan you’re applying for. The machine does the majority of the heavy lifting. After the computer draws a conclusion, your lender will briefly double-check the result and issue a decision. Lenders use automated underwriting because it’s much faster than manual underwriting.

Manual underwriting is just the opposite. Instead of using a computer to analyze your application data, a human looks at your finances. Manual underwriting takes more time than automated underwriting and requires more documentation. However, if you have a unique financial situation, manual underwriting can improve your chances of getting a loan.

Take the first step toward the right mortgage.

Apply online for expert recommendations with real interest rates and payments.

How Does Manual Underwriting Work?

Here’s what to expect if your lender manually underwrites your loan.

Collection Of Your Financial Information

Before an underwriter can decide whether you qualify for a mortgage, they need to understand your financial situation. Your lender will ask you for quite a bit of documentation if they’re manually underwriting your loan. Some things you might need to provide include:

  • Up to 12 months of bank statements
  • Several years of tax returns
  • Your resume or CV (for your underwriter to verify your employment)
  • Account information from your retirement account or taxable brokerage account
  • Verification of any other assets you own, like vehicles or homes
  • Recent pay stubs that prove you have consistent, reliable income
  • Profit and loss statements if you’re self-employed or own a small business

Your job is to provide your lender with any documentation or information they need. Have all of this documentation on hand before your lender asks, for a faster decision.

Review Of Your Credit Report

Your credit report contains information about your relationship to debt. Your credit report shows your lender things like loans and credit accounts in your name and it also contains information about any missed or late payments on these accounts. When your underwriter looks at your credit report, they aren’t just looking at your credit score. Instead, the lender looks to see if you have a history of consistent, on-time payments.

If you don’t have any items on your credit report, your lender might ask you for proof of past payments. Records of on-time rent, utility and even insurance payments can boost your chances of approval during a manual underwrite.

During this stage, your lender might ask you for a letter of explanation. This is a personal letter written by you that explains an item on your credit report. Let’s say you have a foreclosure or bankruptcy on your credit report – your lender will want to know what happened.

Try not to panic or take it personally if your lender asks you to explain an item on your credit report. A request for a letter of explanation won’t stop you from getting a mortgage. On the contrary, this request means that your lender is still considering you for a loan. If you didn’t qualify, the lender would instead outright reject you. Write a short, direct letter explaining any discrepancies to keep your application on track.

Review Of Your Income And Assets

Next, your lender will take a look at your personal income and assets. Your lender will look at how much money you have coming in and compare it to how much you’ll need to pay each month if they give you a loan.

Your underwriter might reach out to your employer to learn more about bonuses, overtime or commissions you earn. They might also ask about your history with the company and how long you’ve been employed there. This is to determine the probability of you leaving your job in the near future. You’re less likely to lose your job and fall behind on your payments if you have a long history with your employer.

Your underwriter will also take a look at your assets during this stage. Anything that you own that has significant value is an asset. Cash in the bank is the most obvious example of an asset, but your underwriter will also look at your retirement and brokerage accounts as well. The goal of analyzing your assets is to ensure that you’ll be able to cover your closing costs, down payment and keep up with your loan payments.

Review Of Your Debt And Liabilities

Your lender will next look at your debt and financial liabilities. One of the first things that your underwriter will calculate is your debt-to-income ratio. Your DTI ratio describes how much of your monthly income goes toward expenses. If most of your income goes to things like credit card payments, rent and loan payments, your DTI ratio will be very high. You’ll have a lower DTI ratio if you have income left over after you pay your bills. Lenders like to see low DTI ratios because they signify that you aren’t overstretched in paying your bills each month.

Underwriters will also look at other regular recurring financial liabilities. Let’s say you pay child support, back taxes or other court-ordered judgments. Your lender will consider this in their decision. Your underwriter wants to know that you’ll be able to afford your mortgage in the future and also cover all your debts. 

Review Of Your Collateral

Finally, your underwriter considers your collateral – that’s your down payment and your property value.

The larger your down payment, the less of a risk you are to a lender. You borrow less money when you bring a larger down payment to the closing table. You don’t need a full 20% down payment, but you almost always need at least 3% down. This down payment must come from your savings or a gift if allowed by your loan type. If you take out a loan to pay for your down payment, that’s a sign of risk for the lender.

Your underwriter will comb through your bank statements to determine where your down payment is coming from. Large or sudden deposits will trigger a red flag. You may need to write a letter of explanation for any unusual deposits outside of your standard income. You’ll also need documentation to back up your claim.

For example, let’s say you sell a car and deposit the money into your bank account. Your underwriter may ask to see the title transfer and proof of sale. The person who gave it to you may need to write a letter confirming that the money isn’t a loan.

Finally, your lender will order a home appraisal for your property. During the appraisal, a home value expert will take a tour of your property and assign an official estimate of value. Lenders require appraisals because they don’t want to loan out more money than your home is worth. You may need to adjust your offer or bring a larger down payment if your appraisal comes back low.

Final Decision

Your underwriter will then issue a final decision on your loan application. The underwriter can deny your loan, approve it or issue a suspension with contingencies. If your application has contingencies, it means that your underwriter needs more documentation before they can approve you. You might get an approval, denial or a suspension with contingencies. If your application has contingencies, it means that your underwriter needs more documentation before they can approve you. Be sure to respond to these inquiries quickly to receive a decision.

When Is Manual Underwriting Done?

A lender might choose to manually underwrite a loan under a few circumstances:

  • You’re living debt-free. Paying back debt is the foundation of a great credit score. But if you choose to live without debt, you might not have much of a FICO® This doesn’t mean that you have bad credit – just that you have no credit at all. If this is your situation, your lender will need to manually consider your repayment ability.
  • You’re new to building credit. Building credit can take years. If you’re a young adult or you just moved to the United States, you may not have a credit score. In this case, your lender may manually underwrite your loan.
  • You’ve had financial problems in the past. Buying a home with a bankruptcy or foreclosure in your past may seem difficult but it’s not impossible. Even if you have a lower credit score, with a large down payment and plenty of savings, your mortgage lender might decide to give you a loan. However, this requires manual underwriting before approval.
  • You’re taking out a jumbo loan. More money borrowed equals more risk for lenders. Mortgage lenders always manually underwrite jumbo loans to limit their risk.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

Can You Choose Manual Underwriting?

If you have a unique financial situation, your lender may automatically choose manual underwriting for you. However, if you want to be sure that your loan is manually underwritten, you can request it from your lender. Contact your lender when you apply for a loan and explain why you think you need manual underwriting. Your lender may or may not honor your request.


Mortgage lenders use computer programs to underwrite most of their loan applications. This is easier on the lender and allows them to produce results quickly. However, if you have a unique financial situation, a lender might manually underwrite your loan.

During manual underwriting, an actual underwriter analyzes your finances and decides whether you qualify for a mortgage. Manual underwriting requires more paperwork than automated underwriting and it also takes more time. Your underwriter will ask for documents like tax returns and bank statements. They will look at your income, assets, debt, liability and credit report before giving you an approval or denial.

Your lender will automatically choose manual underwriting for your loan if you have no credit, a major financial event on your record or if you’re getting a jumbo loan. You may also be able to request manual underwriting, depending on your lender.

See What You Qualify For