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Let’s do the math. I was looking at our approval rates last week when I saw something interesting. About 23% of our applications were sent to manual underwriting, which is more than the 18% that were sent last quarter. The data shows that most of these cases are self-employed borrowers or people with credit scores between 580 and 620, which is too low for the automated system to figure out risk.
Here's how it breaks down. When you apply for a mortgage, the lender will first run your information through an automated underwriting system. This is how about 70–80% of applications are handled. The algorithm looks at your credit score, the amount of debt you have compared to your income, your work history, and your assets. It either approves you, sends you to someone else for more review, or denies you—all in a matter of minutes.
But the other 20–30% needs to be looked over by a person. That's underwriting by hand. The 30-year fixed-rate mortgage is currently at its lowest level in over a year, averaging 6.19%. When rates were over 7% at the start of 2025, it was harder for current borrowers to qualify. The math is better now for cases that are on the edge.
There is manual underwriting because automated systems can't do everything. They use binary logic, which means they can only say yes or no, approve or deny. They can't weigh different factors or think about the bigger picture like a person can. If the algorithm doesn't work for your finances, manual underwriting gives you a second chance with a human review.
The data shows a trend that has been going on for the last 30 years. Every loan was manually underwritten in the 1990s. Underwriters made decisions based on calculators, paper files, and their own judgment. It took about 30 to 45 days on average to process.
Fannie Mae then released Desktop Underwriter in 1995, and Freddie Mac released Loan Prospector, which is now known as Loan Product Advisor. These automated systems cut down on processing time to 24 to 72 hours. The gains in efficiency were huge. Automated underwriting took care of about 85% of regular loan applications by 2010.
But the numbers showed that automated systems had blind spots. Statistically, self-employed borrowers were turned down by automated systems 40% more often than W-2 employees, even when their actual income was similar. The algorithms weren't able to correctly look at business write-offs or income patterns that weren't normal.
That's why manual underwriting is still around. It became a specialized process for cases where algorithmic evaluation doesn't work. Current industry data shows that about 15–25% of all mortgage applications will be looked at by hand to some extent.
Let me explain what happens in automated underwriting step by step. The system gets information from three main places: your credit report from all three bureaus, databases that check your employment, and systems that check your assets.
The algorithm uses these important metrics to do its math:
Credit Score Analysis: The system checks your FICO score against the lowest scores that the program allows. For FHA loans, that's 580 for 3.5% down or 500 for 10% down. For regular loans, the minimum is usually 620, but some lenders want 640.
To figure out your debt-to-income ratio, divide your total monthly debt payments by your gross monthly income and then multiply that by 100. HUD's 2025 FHA handbook updates say that FHA loans with a DTI higher than 43% must be sent for manual underwriting right away.
To get the loan-to-value ratio, take the purchase price, subtract the down payment, and then divide that by the purchase price times 100. This tells you what your equity position is.
Asset Verification: The system makes sure you have enough money for the down payment, closing costs, and any reserves that may be needed.
The automated system works well when you have had a standard W-2 job for at least two years, a credit score of at least 620, proof of income that matches your pay stubs and tax returns, a DTI below 43%, enough cash in traditional accounts, and a simple purchase with no problems.
But what if your data doesn't fit these criteria? That's when you need to do manual underwriting.
Based on industry research, here are the most common reasons for manual underwriting:
The information is shocking. The Consumer Financial Protection Bureau says that about 26 million Americans don't have a credit file at all, and another 19 million don't have enough credit history to get a score. That's a lot of people—about 20% of all adults in the US.
Automated systems need a credit score to work. If there is no score, they give an error. With manual underwriting, you can look at other types of credit, like 12 months of rent, utility bills, insurance premiums, cell phone bills, and other regular payments.
15–20% of mortgage applicants are self-employed. Their automated approval rate is about 40% lower than that of W-2 employees with the same income.
Why? Because the algorithm needs easy-to-understand proof of income. To figure out self-employed income, you need to look at two years' worth of tax returns, figure out the average income, account for depreciation and business costs, and look at income trends. A human underwriter can figure out these complicated numbers and make decisions.
As of 2025, HUD says that all FHA loans with credit scores below 620 must go through manual underwriting. You have to do this. The rule says that a human must look at the compensating factors.
Borrowers with scores between 500 and 579 need to put down 10%. For scores between 580 and 619, a 3.5% down payment is okay, but the borrower still needs to go through manual underwriting to make sure they can make the payment.
The FHA says that the maximum DTI should be 31% for front-end housing debt and 43% for back-end total debt. But HUD's 2025 manual underwriting matrix lets DTI go up to 40%/50% if there are other factors that make up for it.
This is how the math works: If your DTI is 47% and you have six months' worth of payments saved up, the risk calculation changes. To find Coverage Months, divide Reserves by Monthly Payment. Six months of coverage gives you a big buffer that automated systems can't properly weigh.
You have to wait two years after filing for Chapter 7 bankruptcy before you can get an FHA loan. With Chapter 13 bankruptcy, you can qualify during the repayment period if you make all your payments on time for 12 months and get permission from the court.
FHA loans usually require a three-year waiting period before they can be foreclosed on. But the data shows that borrowers who went through these things because of things like medical bankruptcy or divorce have lower default rates than what raw credit scores would suggest. With manual underwriting, you can look at the situation and the steps being taken to fix it.
Automated systems mark deposits that are more than 50% of monthly income. The algorithm can't tell if these are money from gifts, sales of assets, or loans that haven't been made public.
You can look at each transaction separately with manual underwriting. A bill of sale and title transfer can prove that you got a $15,000 deposit from selling a car. A gift letter and proof of the donor's ability to give can be used to show that a gift of $20,000 was made. The underwriter follows the money and checks where it came from.
The Federal Housing Finance Agency says that the conforming loan limits for most of the continental United States are $806,500. "Jumbo" loans are those that go over this amount and need to be reviewed by hand.
Almost all loans over $2.5 million are manually underwritten. The dollar amounts are too high for just algorithmic approval. Lenders want to make sure that the borrower's income is enough, their assets are easy to sell, and they can pay back the loan.
You need to do special math for alimony, child support, disability income, Social Security benefits, investment income, and rental property income. Automated systems have a hard time with these kinds of income because there are different ways to check them.
Underwriters can accurately figure out and check each source of income according to program rules when they do manual underwriting. This makes sure that the total income is correct.
The data shows that manual underwriting takes an average of 10 to 21 days, while automated processing only takes 24 to 72 hours. This is how the timeline looks:
The underwriter asks for a lot of paperwork. To check your credit, you need letters explaining any bad marks, proof of any disputes, proof of any other credit sources if you don't have traditional credit, and proof of 12 months of rental payment history.
To prove your income, you need 30 to 45 days' worth of pay stubs, two years' worth of W-2 forms, two years' worth of personal tax returns with all schedules, two years' worth of business tax returns if you're self-employed, a year-to-date profit and loss statement, and proof of any non-traditional income sources.
For asset verification, you need 60 days of bank statements from all of your accounts, statements for your investment and retirement accounts, proof of your gift fund with letters and donor verification, proof of the sale of your assets, and letters explaining large deposits.
We've made this process easier at AmeriSave by letting you upload documents digitally and automatically organizing them. This cuts the collection phase down to the lower end of the 2-3 day range.
The underwriter looks at your credit report in a methodical way. FHA rules that were updated in 2025 say that they have to check 12 to 24 months of payment history on all trade lines.
They look at other credit sources for borrowers who don't have traditional credit. There must be at least three trade lines with payment histories going back at least 12 months. Acceptable options are paying rent at least $0 a month, paying for utilities, paying for insurance, and getting cellular phone service.
The underwriter gives each trade line a score: on-time payments are good, late payments are bad, collections and judgments are bad, and a long credit history is good.
This is the main way that manual underwriting is different from automated processing. The underwriter must make sure that the income is legally obtained, properly documented, and likely to last for at least three years, which was updated in May 2024.
For W-2 employees, it's easy to figure out: Qualifying Income is Base Salary plus Regular Overtime plus Regular Bonuses. The underwriter checks the borrower's two-year work history and figures out the average if their income changes.
For borrowers who work for themselves, the math is more difficult. Hold on, I need to do the math again to make sure I'm explaining it correctly. To get Year 1 Net Income, you take line 12 of your tax return, subtract non-recurring items, and add depreciation. The same calculation is done for Year 2 Net Income. So you add them up and divide by 2 to get Average Income.
The underwriter takes depreciation into account because it is a paper expense that doesn't affect cash flow. To figure out how much money you can make over time, you don't count one-time income or expenses.
The underwriter figures out three important numbers:
Cash Needed to Close: Down Payment + Closing Costs + Prepaid Expenses + Required Reserves
Checking, savings, 60% of retirement accounts, and investment accounts are all examples of liquid assets.
The coverage ratio is the amount of available assets divided by the amount of cash needed to close.
For FHA loans, the lowest down payment is 3.5% for credit scores of 580 or higher and 10% for scores of 500 to 579. The underwriter keeps track of every large deposit and needs proof for any deposit that is more than 50% of the gross monthly income.
The underwriter checks the appraisal to make sure the value of the property is equal to or greater than the purchase price. FHA appraisers must find conditions that affect the safety, security, soundness, health of the people living there, or the structural integrity of the property, as required by HUD's 2025 property standards.
The underwriter figures out the loan-to-value ratio by dividing the loan amount by the property value and then multiplying that by 100. This tells you what your equity position is and whether your down payment meets the program's requirements.
There are different manual underwriting rules for each government loan program. The numbers show this:
In 2020, the Federal Housing Administration changed its manual underwriting rules. It made more changes in 2024 and 2025. Manual underwriting is required when the borrower's credit score is below 620, their debt-to-income ratio is above 43%, they have disputed derogatory accounts totaling $1,000 or more, they are facing foreclosure within three years, they are filing for bankruptcy within two years, or they have recently missed mortgage payments.
Compensating factors let DTI ratios go up. The data shows that three things are the most important:
Cash Reserves: For properties with one to two units, you need three months' worth of mortgage payments; for properties with three to four units, you need six months' worth. Minimum Reserve Amount is the Total Monthly Payment times the Required Months.
Minimal Payment Increase: The new payment can't be more than $100 or 5% more than the old payment, whichever is less. The formula is: IF the difference between the new payment and the old payment is less than $100 OR 5%, THEN it counts as a compensating factor.
Residual Income: If you meet the VA's residual income standards, you can get extra credit for FHA loans.
The Department of Veterans Affairs doesn't require a minimum credit score, but most lenders do. Residual income is more important than DTI when it comes to VA loans.
Residual Income is what you get when you take your Gross Monthly Income and subtract your Federal Tax, State Tax, Social Security Tax, Monthly Debts, and Regional Living Allowance.
A family of four in the South region with a loan of more than $80,000 needs at least $1,003 in residual income each month, according to VA rules. The cost of living in different areas means that they have different needs.
The U.S. Department of Agriculture offers zero-down-payment loans for eligible rural properties. Chapter 10 of USDA Handbook 1-3555 says that applications can be manually underwritten if the Guaranteed Underwriting System says "Refer."
Most areas will have income limits for USDA loans set at 115% of the area median income. Manual underwriting lets you figure out your income in great detail, which is especially important for self-employed people who have complicated income documents.
The data shows clear patterns over time. The average time for automated underwriting is 48 hours from application to decision. The average time for manual underwriting is 14 days, but it can take anywhere from 10 to 21 days depending on how complicated it is.
Here's how it breaks down by level of difficulty:
Simple cases take 10 to 12 days, like when a W-2 employee has clear income, a few credit problems, and easy-to-understand assets. Two days to collect documents, six days to review them, and two days to make a final decision.
Moderate cases take 13 to 16 days. This is when someone is self-employed, has a steady income for two years, some credit events, and regular assets. It takes three days to collect documents, nine days to review them, two days to make a final decision, and two days for any extra documentation requests.
17 to 21 days for complicated cases: a lot of income sources, big credit events, complicated assets, and property problems. It takes three days to collect the documents, twelve days to review them, and two days to make a final decision. If there are multiple rounds of documentation, it takes four more days.
New data from the industry shows that the time it takes to manually underwrite has gone down from 30 to 45 days in the 1990s to 10 to 21 days now. Technology makes it possible to process documents faster, do calculations automatically, and make communication easier.
The data shows clear patterns for how to improve your chances of getting approved after looking at hundreds of manual underwriting outcomes. I was looking at our database last night and saw something I hadn't seen before: response time is more important than I thought at first.
Applications with all the necessary documents up front are processed 40% faster than those that need multiple document requests. To be fully documented, you need to send in two years' worth of tax returns, W-2s or 1099s, 30 days' worth of pay stubs, 60 days' worth of bank statements, proof of employment, letters explaining your credit, gift fund documentation, and asset sale documentation.
The numbers show that each factor that makes up for something else increases the chances of getting approved by about 15–20%. A lot of compensating factors add up. One thing to think about is if you have three months' worth of savings. Add a small increase in payments; that's two factors. With two strong reasons to support your case, your chances of getting approved go up by about 30–40%.
The data shows that four alternative trade lines work better than three minimum trade lines for borrowers who don't have traditional credit. Every extra documented payment history beyond the minimum of three raises the chances of approval by about 10%.
The numbers are clear for people who work for themselves. Getting more money each year greatly increases your chances of getting approved. Even if their average income is the same, a borrower with 10% annual income growth has a 35% higher chance of getting approved than a borrower with flat or falling income.
The data shows that borrowers who respond to underwriter requests within 24 hours have timelines that are 25% shorter than those who take 48-72 hours to respond. When I looked at the numbers, I was surprised to see that faster response times also led to higher approval rates. I thought there would be a 5–10% difference, but the link was much stronger.
Underwriters make one of three decisions after the review is over. Here are the numbers:
About 15% of manual underwriting decisions are based on Clear to Close Approval. All conditions have been met, and we are ready to close. It usually takes 5 to 7 days from this decision to closing for final checks.
About 70% of manual underwriting decisions are for Conditional Approval. Accepted with certain conditions. Some common conditions are an updated pay stub within 30 days, an updated bank statement within 60 days, proof of employment 72 hours before closing, a final inspection that confirms repairs, the completion of title work, and proof of homeowners insurance.
Conditional approval is a good thing. The numbers show that 90% of conditional approvals close successfully after all conditions are met.
Suspension or Denial makes up about 15% of all manual underwriting decisions. Suspension means that more information is needed before a decision can be made. Denial means that the current situation doesn't meet the requirements.
The data does show, though, that 40% of applicants who were denied at first are able to reapply and get approved after fixing the reasons for their denial. Common ways to fix the problem are to pay off debt to lower the DTI by 5–10 percentage points, wait 6–12 months for the credit score to go back up, save more money, or get a stable job.
In addition to qualifying borrowers who fail automated screening, manual underwriting has measurable benefits:
Personalized Risk Assessment: Manual underwriting cuts down on false negatives by about 30%. Algorithms wrongly turn down these borrowers, even though they are creditworthy.
Accuracy of Income Evaluation: Manual underwriting makes income calculations about 25% more accurate for self-employed borrowers than automated systems.
Integration of Compensating Factors: When there are strong compensating factors, manual underwriting can approve borrowers with DTI ratios that are 5–7 percentage points higher than the limits set by automated systems.
Trend Recognition: Manual underwriting is more likely to approve borrowers whose financial situations are getting better, such as those whose credit scores go up by 50 points or more over 12 months or whose incomes go up by 10% or more each year.
There are a few things that affect manual underwriting:
Rate Environment Improvement: Freddie Mac's data shows that the 30-year fixed-rate mortgage is now at 6.19%, down from more than 7% at the beginning of 2025. This is the lowest level in more than a year.
The math is better for people who borrow money now. If you put down 20% on a $400,000 loan with a 7% interest rate, your monthly payment would be about $2,129. At 6.19% rates, that payment goes down to about $1,956, which is $173 less per month, or about 8% less.
Impact of Government Shutdown on Processing: The FHA, VA, and USDA loan processing is still affected by a federal government shutdown that started on October 1, 2025. The data shows that government-backed loans took an extra 5 to 10 days to process during the shutdown.
Refinancing Volume Surge: Sam Khater, Freddie Mac's Chief Economist, said in October 2025 that refinancing has made up more than half of all mortgage activity for six weeks in a row. This higher volume means that underwriters have more work to do, which could mean that timelines are pushed back by 2 to 4 days across the board.
Affordability Issues: The National Association of REALTORS® says that median home prices are still close to record highs, even though rates have gone down. The ratio of median price to median income is about 5.8 to 1, which is higher than the historical average of 4.0 to 1. This means that more people need manual underwriting to get a loan, even though rates are going down.
Statistical analysis shows that these are common mistakes:
Myth 1: Manual underwriting means the borrower is a high risk. The truth is that the data shows that manual underwriting is just another way to evaluate. About 60% of manually underwritten loans are regular loans to people with credit scores over 620, not people with high-risk profiles.
Myth 2: Manual underwriting needs perfect credit. The truth is that FHA will accept credit scores as low as 500 if they are manually underwritten. According to the numbers, 30% of FHA loans that are manually underwritten go to people with scores below 620.
Myth 3: Manual underwriting costs more. Reality: Industry data shows that the average underwriting fees for manual and automated processing are usually between $400 and $900, with a difference of less than $50. The method doesn't add to the cost; the loan's complexity does.
Myth 4: Manual underwriting means higher rates. The truth is that your credit score, LTV ratio, loan type, and lender pricing all affect the interest rate. The data shows that two people with the same credit scores and LTV ratios get the same rate quotes, no matter how the loan is underwritten.
Myth 5: The only type of loan that does manual underwriting is FHA. The truth is that about 20% of conventional loans, 35% of VA loans, 25% of USDA loans, and 40% of jumbo loans are looked over by hand in some way.
This is what the data says about manual underwriting in 2026:
Manual underwriting gives approval paths to about 15–25% of mortgage applications that don't fit the rules set by the automated system. The process takes 10 to 21 days instead of 24 to 72 hours for automated processing. This is a 300 to 600% increase in time.
You need to send in up to 12 months of bank statements, two years of tax returns, proof of employment, and letters explaining any credit problems. Automated underwriting and processing costs are statistically the same, with an average difference of $50.
Compensating factors can make DTI ratios 5 to 7 percentage points higher than normal limits. Each strong compensating factor increases the chances of getting approved by about 15–20%, and these effects add up.
Freddie Mac's data from October 23, 2025 shows that mortgage rates are at 6.19%, which is the lowest level in more than a year. This better rate environment makes it easier for people who are on the edge to qualify.
If you're not sure if manual underwriting is right for you, the numbers say that talking to a knowledgeable loan officer is the best first step. Since the market is currently good for borrowers, now might be a good time to look into your FHA loan options through AmeriSave. If you need it, you can even get manual underwriting.
Based on industry averages, manual underwriting takes 10 to 21 days from the time the first documents are submitted to the time the final decision is made. Automated underwriting, on the other hand, takes only 24 to 72 hours. The long timeline is due to the fact that human underwriters have to carefully look over a lot of paperwork, which can be hundreds of pages long and include tax returns, bank statements, employment records, and credit reports. The data breaks down like this: The document collection phase takes about 2–3 days, or about 20% of the timeline. The credit analysis phase takes about 1–2 days, or about 10% of the timeline. The income calculation phase takes about 2–3 days, or about 20% of the timeline. The asset adequacy review takes about 1–2 days, or about 10% of the timeline. The property collateral review takes about 2–3 days, or about 20% of the timeline. The remaining 20% of the time is spent on underwriter review time and quality checks. Improvements in technology have cut the time it takes to manually underwrite loans from the 30 to 45 days that were common in the past. Statistical analysis indicates that borrowers who submit thorough documentation in advance and respond to inquiries within 24 hours encounter timelines at the shorter end of the spectrum, roughly 10-12 days for uncomplicated cases. Some things that can make timelines longer are incomplete initial documentation, which adds 3–5 days for follow-up requests; difficulty confirming employment or income, which adds 2–4 days for third-party confirmations; complex tax returns that need detailed analysis, which adds 2–3 days for calculations; and a busy season for underwriters, which adds 2–4 days for queue time. The current state of the market affects timelines. For example, the ongoing refinance boom is making underwriters' jobs harder, which is causing processing to take an extra 2 to 4 days across the board. We've improved our manual underwriting process at AmeriSave by using digital document management and automated calculation tools. This has cut the time it takes to make a decision from the time the first document is submitted to 12–14 days.
Yes, borrowers can ask for manual underwriting even if they get automated approval. However, this happens in less than 5% of cases, and lenders may question why the borrower wants it. There are some situations where borrowers might want a manual review. For example, if an automated system approved the loan but didn't take into account all of the borrower's income, or if the borrower had a lot of compensating factors that the algorithm didn't properly weigh, or if the borrower thought that a human review could get them better terms by looking at the situation in the right way. The data, on the other hand, shows that about 95% of borrowers benefit from accepting automated approvals when they come in. This is because these decisions come in 24 to 72 hours instead of 10 to 21 days, need 60 to 70% less documentation based on page count analysis, and don't have any extra risk of reversal that manual review might bring if human interpretation differs from algorithmic evaluation. About 25% of applications follow a more common pattern in which automated systems return a "refer" recommendation that requires manual review of certain parts. In these situations, the system automatically checks some parts and marks others that need human judgment. Automated approvals for government-backed loans like FHA, VA, and USDA are very important. Less than 2% of them are reversed during the closing process unless the borrower's situation changes significantly or new information comes to light that wasn't in the original file. If you want to ask for a manual review of an automated approval, talk to your loan officer about why you want to do this. They can then figure out if this approach makes sense mathematically for your situation.
Different loan programs have different credit score requirements for manual underwriting. The following are some statistical ranges: FHA manual underwriting will accept credit scores as low as 500. However, borrowers with scores between 500 and 579 must put down 10% instead of the usual 3.5% for scores of 580 or higher. About 8% of FHA loans that are manually underwritten go to borrowers with scores below 580. According to recent statistics, about 30% of FHA applications need manual underwriting instead of automated approval if their credit scores are below 620. The Department of Veterans Affairs doesn't require a certain credit score for VA loans, but statistics show that 95% of lenders set overlays that require a score between 580 and 620 for manual underwriting to be considered. Fannie Mae and Freddie Mac back conventional loans, which have stricter requirements. 75% of lenders require a minimum credit score of 620 for manual underwriting, and most prefer a score of 640 or higher for better terms and lower prices. For most USDA lenders, 640 is also a reasonable minimum for manual underwriting approval. The numbers show that minimum credit scores are only part of the story. Statistical analysis shows that payment history patterns from the last 12 to 24 months are just as important, if not more so, for approval decisions. The data shows that a borrower with a 600 credit score and a perfect payment history for the past 24 months has about a 35% higher chance of getting approved than someone with a 640 credit score and three late payments in the past 12 months. Credit score is only one piece of information that manual underwriting looks at. Statistical models show that factors like having a lot of savings and a stable job can make up for lower scores by adding 20 to 40 points to the chances of getting approved.
No, about 95% of reputable lenders, including AmeriSave, do not charge extra fees for manual underwriting services. Statistical analysis of lender fee structures shows that manual underwriting is just another way to process loans that is part of standard underwriting operations. The average underwriting fee is between $400 and $900, depending on the lender and the complexity of the loan. The fees for manual and automated processing are statistically within $50 of each other, which is less than 5% of the total. But manual underwriting can have an indirect effect on costs in a number of ways that can be measured. Because it takes longer to process, borrowers who pay per diem interest for rate locks will have to pay extra daily fees, which usually add up to $30 to $80 for the extra 10 to 14 days, depending on the average loan amount and current rates. For manual underwriting, there are some paperwork requirements that are unique to it, such as proving rent or having other credit tradelines. These require small third-party verification fees that range from $15 to $50 per verification. If three verifications are needed, the total cost is usually between $45 and $150. If manual underwriting finds problems with the property that need a second appraisal, the cost of the second appraisal is the same as the first one, which is $300 to $600 depending on the type and location of the property. Some lenders charge borrowers they think are higher risk higher overall origination fees, but statistical analysis shows that this has to do with the borrower's credit profile and not the underwriting method itself. The data shows that if a lender quotes you fees that are more than $200 higher because of manual underwriting instead of automated processing, this is a statistical outlier. This means you should look for other lenders. There are good reasons for higher costs, such as the fact that loans under $150,000 have fees that are about $150 to $300 higher than larger loans because of fixed processing costs. Also, properties in rural areas have appraisal fees that are about $200 to $400 higher than properties in cities because of the cost of the appraiser's travel.
If you are denied manual underwriting, it means that the underwriter looked at all of your financial information and decided that you don't currently qualify. However, industry statistics show that about 40% of people who are initially denied are able to reapply and get approved after fixing certain problems. Denials include detailed explanations of specific reasons, which give a clear path for improvement. Statistical analysis of denial reasons shows these primary categories: insufficient income represents approximately 35% of denials where debt-to-income calculations exceed allowable limits without adequate compensating factors; inadequate credit history accounts for approximately 25% of denials showing patterns of late payments, collections, or judgments that suggest elevated risk; insufficient assets cause approximately 20% of denials where borrowers cannot document adequate funds for down payment, closing costs, and required reserves; employment instability represents approximately 10% of denials where income cannot be verified as likely to continue for at least three years; property appraisal issues account for approximately 10% of denials where value comes in too low or condition problems cannot be resolved. Federal law says that when you are denied, your lender must send you a "adverse action notice" that tells you exactly why you were denied and what your rights are. The data shows clear ways to fix things that have measurable success rates. For example, paying down debt to lower DTI by 5 percentage points increases the chances of getting approved by about 35% when you reapply; waiting 6 to 12 months while building a good payment history increases the chances of getting approved by about 40% if previous denials were credit-related; saving an extra 5% more for a down payment increases the chances of getting approved by about 30% when you reapply; and getting a stable job with two years in the same field increases the chances of getting approved by about 45% if the previous denial was job-related. The time it takes to reapply depends on why you were denied. For example, if you were denied because of income or DTI issues, you can fix them in 3–6 months by paying off your debt. However, if you were denied because of bankruptcy, you have to wait 24 months for Chapter 7 or 12 months for Chapter 13 repayment plans, according to the program's rules.
Yes, and statistical data shows that self-employed borrowers often go through manual underwriting with success rates that can be measured. About 15 to 20% of all mortgage applicants are self-employed. About 60% of these applications need or greatly benefit from manual underwriting instead of automated processing because their income is complicated. The process needs a lot of income paperwork so that underwriters can do detailed math. You need to provide two years' worth of personal tax returns with all schedules, which usually adds up to 40 to 100 pages per year. If you run your business as an S-corporation, partnership, or C-corporation, you also need to provide two years' worth of business tax returns, which adds another 30 to 80 pages. You also need to provide a year-to-date profit and loss statement prepared by you or your accountant that shows how your business is doing this year, which adds 5 to 15 pages. Finally, you need to provide two months' worth of business bank statements that show your cash flow matches your reported income, which adds about 20 to 40 pages. The underwriter uses math to figure out your income by looking at your tax returns from the last two years. To find the average qualifying income, add Year 1 taxable income to Year 2 taxable income, then subtract one-time income. Then divide that number by 2. Statistical analysis indicates that depreciation add-backs enhance qualifying income by roughly 15-25% for self-employed borrowers in comparison to raw taxable income. The data shows that changes in income have a big effect on approval rates. Self-employed borrowers who have seen their income grow by 10% or more each year have approval rates that are about 35% higher than those whose income has stayed the same or gone down, even when their average income over two years is the same. A borrower whose business income went from $75,000 in year one to $95,000 in year two, with an average of $85,000, has a much better chance of getting approved than a borrower whose income went from $95,000 in year one to $75,000 in year two, even though the averages are the same. The success rate for self-employed borrowers in manual underwriting is about 55–65%, while the success rate for automated underwriting is only about 35–45%. This means that when a human looks at business income correctly, the success rate goes up by 20 percentage points.
No, statistical analysis of interest rate pricing shows that manual underwriting does not directly lead to higher rates. Interest rates are set by measurable factors like current market conditions and economic trends that affect all borrowers equally; credit score, which affects pricing through risk-based adjustments measured in loan-level price adjustments; loan-to-value ratio, which shows equity position with each 5% change in LTV affecting rates by about 0.125% to 0.375%; loan type and term, with 15-year loans pricing about 0.5% to 0.75% less than 30-year loans; lender pricing strategies and profit margins, which vary by about 0.25% to 0.5% between lenders; and discount points paid at closing, where each point costs 1% of the loan amount and lowers the rate by about 0.25%. Lenders do not use the underwriting method, whether it is automated or manual, to set interest rates. But there may be an indirect statistical link between manual underwriting and rates that is worth knowing about. The data shows that borrowers who go through manual underwriting have average credit scores that are about 35 to 45 points lower than those who get automated approvals. This is important because credit score has a big impact on rates through risk-based pricing. A statistical analysis shows that a borrower with a 620 credit score pays about 1.5% to 2.5% more in loan-level price adjustments than a borrower with a 760 credit score. This means that the interest rate is about 0.75% to 1.25% higher, no matter how the loan is underwritten. Also, borrowers who need manual underwriting may have lower down payments or higher debt-to-income ratios, which can also affect pricing through measurable risk-based adjustments. But these things affect rates because of what they are in numbers, not because manual underwriting looked at them. For example, let's say Borrower A has a credit score of 720, a down payment of 20% at 80% LTV, and goes through manual underwriting because they are self-employed and make $95,000 a year. Borrower B has a credit score of 720, a down payment of 20% at 80% LTV, and gets automated approval because they are a W-2 employee and make $95,000 a year. Statistical pricing models show these borrowers would receive identical interest rate quotes from the same lender, typically within 0.025% or one basis point. The underwriting path doesn't affect the rate; it's based on the credit score and LTV ratio. Mortgage rates were 6.19% on October 23, 2025. Borrowers with good credit scores and loan features can get good rates regardless of how they are underwritten.
Compensating factors are positive financial traits that can be measured and make up for weaknesses in mortgage applications. They are one of the main statistical benefits of manual underwriting over automated systems. HUD's 2025 manual underwriting guidelines say that compensating factors can help borrowers qualify even if their debt-to-income ratios or credit profiles would normally cause them to be turned down. The data shows that the chances of getting approved have gone up. Having a lot of cash on hand is the most important thing that can help you out. This means having verified liquid assets left over after closing that are worth several months' worth of mortgage payments. Statistical analysis shows that having reserves above the program minimums each month increases the chances of getting approved by about 5%. Three months' worth of total mortgage payment reserves can make up for DTI ratios that are higher than normal. For example, if standard guidelines say that DTI can't go above 43% and you have reserves equal to six months of payments, you would do the math like this: 6 months of reserves minus 3 months of required payments equals 3 months of extra reserves. If you get 5% more each month, that means you have a 15% higher chance of getting approved. The second strong reason to approve is a small increase in the cost of housing. Statistically, if your new total monthly housing payment is no more than $100 or 5% higher than your old payment, whichever is less, your chances of getting approved go up by about 18–22%. The formula is this: If the absolute value of the new payment minus the old payment is less than $100 or the old payment times 0.05, then it counts as a compensating factor. A third strong compensating factor is the ability to save money over time, which is measured by the savings rate. If you've consistently saved 5% or more of your gross income while paying all of your bills on time, your chances of getting approved go up by about 12–15%. To find the savings rate percentage, divide the total savings over 24 months by the total gross income over 24 months and then multiply by 100. Other factors that can help your chances of getting approved include having little consumer debt (less than 10% of gross income for monthly payments), having stable employment for more than five years in the same field (which improves your chances of getting approved by about 8–12%), having verified residual income after all expenses that is 20% or more above program requirements (which improves your chances of getting approved by about 15%), and making a large down payment that is 5 percentage points or more above program minimums (which improves your chances of getting approved by about 20%). The statistical models demonstrate that compensating factors exert cumulative effects. A borrower with a 630 credit score and 45% DTI, but six months of reserves, a small payment increase, and a strong savings history has three compensating factors. Each of these factors adds about 15% to the borrower's chances of getting approved, which is about 45% more than a similar borrower without compensating factors. The data shows that manual underwriting lets human underwriters do these complicated multivariate calculations and make more detailed risk assessments that automated systems can't do.
Manual underwriting needs a lot of paperwork, usually 150 to 300 pages, depending on how complicated the borrower is. This lets underwriters do a thorough financial analysis. The statistical breakdown shows the following types of documents and how many pages they usually have. If you have 20 to 40 pages of credit verification, you'll need explanation letters for any negative marks, which are usually 1 to 2 pages each. If you have no traditional credit history, you'll need verification of alternative credit sources, such as rental payment history for 12 months (adding 12 to 15 pages), utility payment history (adding 10 to 15 pages), insurance payment records (adding 8 to 12 pages), and letters from these companies confirming payment history (adding 3 to 5 pages per trade line). For income verification that is 60 to 120 pages long, W-2 employees need their most recent pay stubs, which cover 30 days and are usually 4 to 8 pages long. They also need W-2 forms from the last two years, which add 2 to 4 pages, personal tax returns with all schedules from the last two years, which add 40 to 80 pages, and a verification of employment form, which adds 1 to 2 pages. Self-employed borrowers also need two years of business tax returns, which can add 30 to 80 pages; a year-to-date profit and loss statement, which can add 5 to 15 pages; business bank statements for two months, which can add 20 to 40 pages; and possibly a CPA letter, which can add 1 to 3 pages. For asset documentation averaging 40-80 pages, you'll provide bank statements from all accounts for 60 days with typical checking account adding 12-20 pages and savings accounts adding 8-15 pages, statements from investment or retirement accounts adding 10-20 pages, documentation of gift funds including gift letters adding 1-2 pages and proof of donor's ability to give adding 5-10 pages, verification of asset sales adding 3-8 pages with supporting documentation, and explanation letters for large deposits with each letter typically 1-2 pages plus supporting documentation of 2-5 pages. To prove your employment beyond basic pay stubs, which are usually 10 to 20 pages long, you may need your resume or CV, which is usually 2 to 4 pages long, an explanation of any gaps in your employment history that adds 1 to 2 pages per gap, proof of any non-traditional sources of income that adds 5 to 15 pages per source, and proof that you have been working continuously for the last 3 to 8 pages. Statistical analysis shows that borrowers who sort their paperwork into clearly labeled groups before sending it in cut processing time by about 25%, which is an average of 2–3 days faster. Submitting digital documents through lender portals is about 35% faster than submitting paper documents.
You can do manual underwriting for both buying and refinancing, but the data shows that the triggers are different for each type of transaction. Freddie Mac data shows that refinancing made up 52% of all mortgage activity through late October 2025. Many borrowers are refinancing to get lower rates, and about 18 to 22% of these refinances go through some kind of manual underwriting. About 15–18% of rate-and-term refinances, in which borrowers lower their interest rates or change the terms of their loans without taking out cash, require manual underwriting. Some common triggers are when borrowers' credit scores drop by 20 points or more since the original loan was made, which affects about 25% of refinance applicants; when borrowers switch from traditional loan products to government-backed loans, which affects about 8% of refinances; or when automated systems flag property value drops of more than 10%, which requires human review and happens in about 12% of refinances. For cash-out refinances where borrowers take out equity, manual underwriting rates go up to about 30–35% of applications because these deals are riskier. The numbers show that lenders want to check with a person when the borrower's debt-to-income ratio goes up by 5 percentage points or more compared to the current loan, the loan balance goes up by more than 20% of the current balance, or the combined loan-to-value ratio goes over 80% after cash-out. The Federal Housing Administration lets people do cash-out refinances with manual underwriting. To get approved, borrowers must show that they made all of their mortgage payments on time for the past 12 months, which is a perfect payment history requirement that affects approval rates. Statistical analysis shows that borrowers with payment histories that meet this standard have a 75–80% chance of getting approved for a loan through manual underwriting. Interest Rate Reduction Refinance Loans, also called VA streamline refinances, don't need much underwriting. About 95% of them are processed automatically, unless borrowers raise their loan amounts above the thresholds for recovering rates and closing costs. But VA cash-out refinances go through full underwriting, and about 40% of them need to be reviewed by hand, depending on the borrower's situation and how much equity they want to take out. USDA loans offer streamline refinances for current USDA borrowers with an automated approval rate of about 85%. However, refinancing from conventional or FHA loans into USDA loans requires full underwriting, which has a manual review rate of about 35%. When refinancing, the paperwork needed is about the same as when buying a home. On average, it takes 150 to 280 pages, while it takes 150 to 300 pages to buy a home. However, the paperwork for the property is different because the borrower already owns a home.
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