This article will talk about FHA and VA manual underwriting.

Manual Underwriting is used when the applicable automated underwriting system won’t approve a transaction based on the data submitted. That doesn’t mean, however, that the loan is declined. In many cases, it just means that something in the credit profile needs to be reviewed more thoroughly.

Bankruptcy, short sale, foreclosure, collection items, or late payments reported could all lead to the automated system referring the loan for manual underwriting.

Lets go into more specific details below.

FHA Manual Underwriting Guidelines

Here are some common FHA manual underwriting requirements:

• Minimum credit score of 580 for a 3.5% down payment for loans to purchase. Cash out refinances will require a 580 qualifying credit score and will allow up to 80% loan to value.
• Debt to income ratios: housing payment = less than 37% of gross income. Total debts = less than 47% of gross income. These can be increased to 40% / 50% if the applicant has compensating factors like 3 months reserves, less than a 5% increase in housing payment, or significant other household income.
• FHA allows underwriters to approve loans for borrowers with more challenging credit profiles. These might include an active Chapter 13 bankruptcy. FHA will require that all accounts reporting on credit will have all payments on time within the most recent 12 months and no more than two(2) 30 days late for any housing or installment debts within 24 months.
• Underwriters will review income, assets, and the subject property. 2 years job history in the same line of work, assets can be checking, savings, 401K, or family gift funds. The appraisal of the subject property, for both purchase loans and refinancing – must meet FHA standards.

VA Loan Manual Underwriting Guidelines

The following are some common VA manual underwriting requirements:

• VA loans help veterans, active-duty service members, and certain members of the National Guard and Reserves obtain home loans.
• The VA doesn’t have a minimum credit score, but lenders usually will require a 580+ qualifying score for manual underwriting.
• 2 years history of on time rents for purchase loan transactions and 24 months mortgage history for refinances with no late payments over 30 days past due.
• VA underwriting looks at both residual income and debt to income ratio, evaluating the funds left after all debts are paid to ensure borrowers can manage living expenses in addition to their housing payment.
• Consistent employment, in the same field for two years is the standard. Underwriters can, however, apply some discretion concerning non-traditional employment histories, especially for service members recently transitioning out of military service.
• Debt to income ratio of around 41% is standard, up to 55% total debt to income ratio is allowed with compensating factors.
• 2 most recent monthly bank statements required: Bank statements required to support borrower’s ability to manage funds. Borrower must provide satisfactory explanation for any Non-Sufficient Funds (NSFs)
• 100% financing for eligible veterans for purchase loan transactions, 90% loan to value for cash out refinancing.

In summary, there are multiple factors for any home loan approval, and the above is not a complete list of requirements. The FHA handbook is now over 1800 pages and the VA lenders Handbook is 18 chapters long. Lucky for you, the author of this article has 20 years of experience with both FHA and VA manual underwriting.

Please reach out with your specific scenario and I’ll be happy to review and answer all your questions.

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