In a manual underwrite for a VA loan, the underwriter may consider factors beyond traditional credit scores, such as payment history, residual income, and compensating factors. Manual underwriting is an alternative to automated underwriting, where a human underwriter carefully reviews and assesses the borrower’s financial situation, creditworthiness, and ability to repay the loan. This is often done when the applicant does not meet the standard automated underwriting requirements or has unique financial circumstances.
Some common reasons why a VA loan might require manual underwriting include:
- Low credit score: If the applicant’s credit score is below the automated underwriting system’s threshold, manual underwriting may be necessary.
- Limited credit history: When the applicant doesn’t have an extensive credit history, manual underwriting can help evaluate their creditworthiness more comprehensively.
- High debt-to-income (DTI) ratio: If the applicant’s debt-to-income ratio exceeds the automated underwriting system’s limit, manual underwriting can consider other factors to assess their ability to handle the loan.
- Previous foreclosure or bankruptcy: Applicants with a history of foreclosure or bankruptcy may need manual underwriting to determine their eligibility.
- Insufficient residual income: Residual income is the amount of money left after accounting for major expenses. Manual underwriting allows the underwriter to calculate residual income and evaluate the borrower’s financial stability.
Manual underwriting requires more documentation and a more thorough review of the borrower’s financial profile compared to automated underwriting. Borrowers should be prepared to provide additional documents and evidence to support their loan application.
Keep in mind that the lending criteria and guidelines can change, so it’s always best to check to be up to date. Contact our team for the most up-to-date information regarding VA manual underwriting requirements!