What is Manual Underwriting?
In simple terms: Manual underwriting is when a human, not a computer, decides if you can afford a home. While most loans are approved by an automated software system (called an Automated Underwriting System or AUS), manual underwriting happens when your financial situation is a bit "outside the box" and needs a person to look at the nuances.
- You have a "thin" credit file (no credit score)
- High debt-to-income ratio
- Recent "event" like bankruptcy or foreclosure
- Non-traditional income sources
You'll need to provide more paperwork to prove you're a responsible borrower:
- Extra pay stubs (30-60 days)
- Additional bank statements
- Explanation letters for credit issues
DTI Limits (Debt-to-Income)
For manual underwriting, the FHA uses strict "tiers" based on your Compensating Factors(strengths in your application, like high savings or a large pay raise).
| Level of "Strengths" | Max Housing Ratio (Front-End) | Max Total Debt Ratio (Back-End) |
|---|---|---|
0No Strengths | 31% | 43% |
1One Strength | 37% | 47% |
2+Two or More Strengths | 40% | 50% |
Common "Strengths" (Compensating Factors)
Cash Reserves
3+ months of mortgage payments verified in the bank
Income Increase
At least $100 or 5% increase in income
Residual Income
Plenty of money left over after all bills are paid
Minimal Payment Shock
New payment is similar to current rent/mortgage
Employment Stability
Long-term employment in the same field
No Discretionary Debt
Limited credit card or consumer debt
LTV Requirements (Down Payment)
Good news! FHA manual underwriting still allows low down payments in most cases. Your required down payment depends on your credit score.
Standard FHA down payment. Available even with manual underwriting if your credit score is 580 or higher.
Required for borrowers with credit scores between 500 and 579. Still achievable with manual underwriting.
Required for "Identity of Interest" transactions (buying from family member or business associate).
Summary for Your Situation
If your credit score is above 580, you can still get away with the 3.5% down payment (96.5% LTV), but you will likely be capped at a 43% total debt-to-income ratio unless you can show the underwriter you have significant savings or a very stable job history. Use our calculator to see where you stand!
Real-World Success Stories
These case studies show how borrowers qualified through FHA manual underwriting despite initial AUS denials. Names and details have been changed to protect privacy.
The Challenge
- • Credit score: 612
- • DTI: 46% (back-end)
- • Self-employed for 3 years
- • AUS Result: "Refer"
Compensating Factors
- ✓ 4 months cash reserves ($18,000)
- ✓ 15% income increase year-over-year
- ✓ No late payments in 24 months
Outcome: Approved with 3.5% down payment. The strong reserves and income growth offset the higher DTI ratio.
The Challenge
- • Credit score: 598
- • Chapter 7 bankruptcy discharged 26 months ago
- • DTI: 41%
- • AUS Result: "Refer with Caution"
Compensating Factors
- ✓ Re-established credit with 3 new accounts
- ✓ Perfect payment history post-bankruptcy
- ✓ Stable employment (5 years same employer)
- ✓ Housing payment similar to current rent
Outcome: Approved with 10% down payment due to credit score under 580 at application, but score improved to 598 before closing.
The Challenge
- • No traditional credit score
- • Only 2 credit accounts (student loan, secured card)
- • DTI: 38%
- • AUS Result: "Unable to Score"
Compensating Factors
- ✓ 12 months rent payment history (on-time)
- ✓ 24 months utility payment history
- ✓ 6 months reserves saved
- ✓ Strong residual income
Outcome: Approved using non-traditional credit. The underwriter verified rent and utility payments directly with landlord and utility companies.
Frequently Asked Questions
Common questions about FHA manual underwriting
Disclaimer: This information is provided for educational purposes only and is based on FHA guidelines as of 2026. Actual loan approval is subject to lender requirements, property appraisal, and other factors. Guidelines may change. Consult with a licensed mortgage professional for personalized advice. NorthStar Funding NMLS #139369.