How to Find Banks That Do Manual Underwriting

Loan underwriting is the process lenders use to assess a borrower’s creditworthiness and the risk associated with a loan application. This evaluation determines if an applicant qualifies for a loan, the amount they can borrow, and the applicable interest rate. While much of this process is automated today, an alternative approach known as manual underwriting exists.

What Manual Underwriting Entails

Manual underwriting involves an underwriter reviewing an applicant’s financial situation for loan eligibility. This contrasts with automated underwriting systems (AUS), which use algorithms to quickly assess borrower data. This human involvement allows for a more nuanced evaluation, considering aspects automated systems might overlook.

Manual underwriting assesses unique or complex financial profiles that do not fit automated algorithms. Automated systems rely on credit scores, debt, and other factors for rapid decisions. If an applicant’s information does not align with these standards, their application may be referred for manual review.

Manual underwriting is beneficial in several specific situations. This includes individuals who are self-employed with fluctuating income or those with non-traditional income sources, such as commission-heavy or seasonal work. Underwriters can analyze multiple years of tax returns, profit and loss statements, and evaluate the stability of such earnings.

Applicants with limited or non-traditional credit history, including those debt-free or new to building credit, often require manual underwriting due to insufficient automated system data. Consistent payment behavior for rent, utilities, or insurance can be considered. Individuals with recent credit events like past bankruptcy or foreclosure, who are now stable, may also benefit. This human review allows for a holistic evaluation, focusing on the “story” behind the numbers.

Navigating the Manual Underwriting Process

Engaging in the manual underwriting process requires meticulous preparation and presentation of financial information. Because an underwriter conducts the review, a more extensive and detailed submission is required compared to automated processes. This involves providing comprehensive documentation that paints a clear financial picture.

Income verification is a key component, requiring detailed documentation. Self-employed individuals should prepare multiple years of tax returns, usually two years, along with profit and loss statements. For those with variable income, such as commissions or bonuses, lenders may request recent pay stubs, year-to-date earnings, and letters from employers confirming income stability. Applicants should provide up to 12 months of bank statements to show consistent deposits and income flow.

Asset verification requires comprehensive documentation. This includes statements from bank, investment, and retirement accounts. Proof of down payment funds’ source is essential; a gift letter is generally required if gift funds are used. The underwriter assesses these assets to confirm sufficient funds for down payment, closing costs, and financial reserves.

Credit history is reviewed, even with low or absent traditional scores. Underwriters seek consistent, on-time payments. For applicants with limited or no traditional credit, alternative data like rent, utility, cell phone, and insurance payments can demonstrate responsible financial behavior. Full disclosure of all debts, including student loans and credit cards, is necessary for the underwriter to calculate the debt-to-income (DTI) ratio.

A letter of explanation provides context for financial anomalies, credit history gaps, or unique circumstances. This explanation helps the underwriter understand the story behind the numbers. Other supporting documents, like a resume or CV for employment verification, may be requested to complete the financial picture. Effectively presenting this financial story is key to a successful manual underwriting.

Finding Lenders That Manually Underwrite

Finding lenders that manually underwrite involves strategic inquiry. These lenders often cater to borrowers whose financial situations do not fit standard automated criteria. Directly inquire about their underwriting processes rather than assuming.

Smaller community banks frequently offer manual underwriting due to localized decision-making and greater flexibility than larger institutions. They often take a more personal approach to evaluating individual financial circumstances. Credit unions, as member-focused organizations, are also often willing to take a personal approach to loan applications, making them potential manual underwriting candidates.

Portfolio lenders also likely manually underwrite loans. They retain loans rather than selling them on the secondary market, providing more control over underwriting criteria and greater discretion in evaluating unique cases. Government-backed programs (FHA, VA, USDA) also offer manual underwriting opportunities. While these programs have established guidelines, they offer more flexibility than conventional loans, especially for applicants with lower credit scores or higher debt-to-income ratios. For example, FHA guidelines require manual underwriting for applicants with credit scores below 620 or debt-to-income ratios exceeding 43%.

Practical strategies for finding these lenders include direct inquiry. Contacting local banks and credit unions to ask about their manual underwriting policies is a productive first step. Experienced mortgage brokers are valuable resources, as they often have relationships with lenders specializing in manual underwriting or complex financial situations. Online searches using terms like “manual underwriting mortgage lenders” or “banks that manually underwrite loans” can yield results, and referrals from real estate agents or financial advisors can also lead to suitable options. When engaging with a potential lender, asking specific questions, such as “Do you keep loans on your books?” or “Do you offer manual underwriting for unique financial situations?”, can help determine if they are a good fit.