Manual Underwriting in Mortgages: What You Need to Know
This article explores the basics of manual underwriting in mortgages, including the advantages and disadvantages. Discover what you should know about manual underwriting, as well as how to make the process as smooth as possible.
What is Manual Underwriting in Mortgages?
Manual underwriting is an age-old process in the mortgage industry, which involves an underwriter analyzing loan data and making a decision about whether or not to approve a loan. The underwriter reviews a borrower's financials and other relevant information to draw conclusions about how reliable an applicant is. Manual underwriting is a process used for those who don't qualify for automated underwriting.
What Are the Different Types of Manual Underwriting?
There are two types of manual underwriting: traditional and government-backed. Traditional manual underwriting is the process used by conventional lenders and follows criteria established by the lender. Government-backed manual underwriting is the process used for government-backed loan programs and follows criteria established by the government agency or department.
How Does Manual Underwriting Differ from Automated Underwriting?
Manual underwriting is a more complicated and difficult process for the underwriter. Automated underwriting is more efficient and less time-intensive, as it generates quick decisions based on a borrower's credit score and other processing factors. Automated underwriting is often more favorable for those with high credit scores and clean credit histories.
What Information is Needed for Manual Underwriting?
In order for an underwriter to complete manual underwriting, they need to review a variety of documents. This includes tax returns, W2s, pay stubs, bank statements, investment accounts, gift letters, copies of identification, affidavits of assets and liabilities, and other required documents.
What Factors Does an Underwriter Consider When Doing Manual Underwriting?
The underwriter will consider a variety of factors when completing manual underwriting. The review starts with the borrower's credit report, which will provide insight into their history of managing debt. The underwriter will also look at the borrower's income and assets, to determine whether they can afford the loan. The underwriter will also look at the value of the property, to ensure it is worth the loan amount.
What Are the Benefits and Risks of Manual Underwriting?
Manual underwriting is beneficial for those who don't qualify for automated underwriting. It allows the underwriter to use their discretion to make a decision on the loan application, considering factors that may have been overlooked by automated underwriting. Manual underwriting can also be beneficial for those who have extenuating circumstances that are difficult to document. However, manual underwriting can be risky, as the underwriter can make an incorrect decision.