You browsed the real estate market for quite a while now – and finally, you’ve picked out the perfect property for you. It has everything you need, and you want to set foot in as soon as possible.

But all of a sudden, reality hits; you still have an entire financing and mortgage process to go through – and it’s anything but simple to navigate.

One of the things you have to get done is underwriting, which can be automatic or manual.

We’ll focus on the manual one today – and see how it works in practice.

If this is your first time qualifying for a mortgage, we recommend that you stick around. We’ll be getting to the bits and pieces of what is manual underwriting and how it works.

We have some critical financing-related information coming your way, so scroll down!

What Is Mortgage Underwriting?

What Is Mortgage Underwriting?

Before we discuss the details of manual vs. automated underwriting, we should look at the bigger picture first – and try to explain what mortgage underwriting is.

In simple terms, mortgage underwriting is defined as the process where the lender evaluates the risks and determines if you qualify for the loan – and how likely you are to pay off the mortgage.

You’re required to submit documentation to your underwriter, who then reviews it in detail and determines whether your current financial situation – among other factors – can handle the mortgage in question.

As a potential borrower, you are met with automated and manual processes.

As the name implies, automated underwriting is handled by a computerized system. It needs much less input information to compile your financial report and determine if you do meet the lender’s standards or not. 

The lender can then check the results and give you the final decision – but the system does most of the heavy-lifting, making the process faster and more efficient.

This type of algorithm-based underwriting isn’t limited to mortgages only; it can be used for other kinds of loans, as well.

Okay, this was just a brief intro to help you understand what we’ll be discussing today – and what your options are.

The main focus, however, is on the manual version of the process.

What Is Manual Underwriting?

Unlike automated underwriting, where the algorithm handles the entire process and makes a decision, manual underwriting is done by hand, meaning – your application is viewed by an actual person and not computer software.

There are circumstances where the lender might opt to underwrite your loan manually – the two most common ones being: 

  • The application got a “refer” recommendation from the automated process and has to be reviewed outside of the AUS
  • The borrower has unique financial circumstances but is otherwise in a good position to qualify for a mortgage

Here’s one plausible and realistic situation. 

For example, suppose the borrower has had financial problems and even accumulated debt. In that case, working with an underwriter is arguably the best way to deal with their situation – and help the borrower obtain the mortgage.

On a similar note, if you fear that your current financial situation will be misinterpreted by the algorithm – that can happen – you can rely on the manual approach.

What Does The Underwriter Do?

As we mentioned previously, an underwriter is a qualified individual who manually reviews the borrower’s application, assesses the risk, and evaluates if they are eligible for a loan.

An underwriter works for a financial organization – such as a loan, mortgage, insurance, or investment company – and their job is to evaluate your assets and financial status. 

In this particular case, based on their findings during the risk assessment, you can either be approved or denied a mortgage loan.

An underwriter’s job carries a lot of responsibility. Because they are the ones that determine the borrower’s credibility and help them qualify for a mortgage, if the contract turns out to be risky, they can be held responsible.

What Is Evaluated During The Underwriting Process?

Everything the underwriter goes through and evaluates can be categorized into three distinct groups, known as the 3 C’s of underwriting – credit, capacity, and collateral. 

Credit History & Payment Records

Your credit reputation is arguably the most critical factor when it comes to determining if you qualify for a loan or not. 

Your credit report and how you handled repaying debts in the past are taken into account and examined thoroughly. 

They’ll look for foreclosures, liens, bankruptcies, and mortgage and credit delinquencies. A history of consistent, on-time payments is always a good indicator of a responsible borrower. 

Even more so, a good credit score is generally the most significant factor in getting better mortgage terms, too.

If you don’t have anything on your credit report, proof of other on-time payments – rent, utility, and insurance payments, for example – can all be reviewed, as well.

Capacity (Your Income & Assets)

The second crucial factor the underwriter will check when evaluating your financial situation and ability to repay the mortgage is your so-called payback capability. In short, they’ll check your personal income and assets (bank statements, 401(k), and IRA accounts) to work out your debt-to-income ratio.

The goal is to ensure that you’re in a stable financial position, that is, what your income is at the moment and whether that will be enough to cover your current obligations and mortgage payments – should you get approved, of course.

A higher DTI and recurring financial liabilities will imply that your budget is already stretched out each month. 

At least two years of stable income would, in most cases, be desirable before qualifying. 

A stable source of income is crucial here – and in most cases, the underwriter might contact your employer. If you’re a business owner and are self-employed, you will probably need to attach supporting documentation to your application.

They’ll also check your liquid cash reserves to ensure that you’ll be able to cover the closing costs and make a down payment.


Finally, checking your “collateral” is another part of the underwriting process, focusing on the actual value of the property you’re taking out a mortgage loan to purchase – and your down payment.

The lender wants to ensure that they approve you for a loan amount that is less than – or equal to – the property’s value. At this stage, they will likely request an appraisal for your property to verify its condition and estimated value.

They will use this information to determine your loan-to-value ratio; anything above 80% is considered high-risk, and you might be required to purchase lenders’ mortgage insurance. 

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Mashvisor’s mortgage calculator – Rental Property Calculator’s built-in feature – can provide the necessary insights to make smarter financial investments based on the loan amount and preferred investment strategy.

The 5 Steps Of The Underwriting Process

The point of this is to give you a realistic picture of what you can expect during the manual underwriting mortgage process. And to do that, we also have to walk you through the five stages of the underwriting process – as outlined below. 

  1. The Preapproval

The preapproval phase is the first one – and it can imply different things. To know if you are “preapproved” or not, manual underwriting lenders have to go through your financial records – specifically the ones we’ve mentioned earlier.

There are two terms you should know within this first step – prequalification and preapproval.

Being pre-approved indicates that you’ll be approved for a certain amount of financing – not necessarily the total amount – as long as your conditions don’t change. 

On the other hand, being “prequalified” is more of a general indication that you’ll probably be approved should you decide to apply formally. 

  1. Verification

This part should go without saying, but you must ensure that the documentation regarding your financial status, income, and other assets is accurate – because, at this stage, lenders will be verifying your financial records. 

Some lenders will even require 12 months’ worth of bank statements and, more often than not, several years’ worth of tax records – on top of other documents.

In addition to that, your retirement funds and the value of your insurance policy – if you have one – can be reviewed for this purpose.

The underwriter has the right to check this information and verify it on the following account:

  • Sudden inflation in your income that does not correspond with the current job
  • Any suspicion of fraud

Be that as it may, some might still try to cheat when applying for manual underwriting home loans, thinking they could avoid verification. Some of the most common false information includes inflated salaries, inaccurate residency, or no reporting debt, to name a few.

The consequences are severe. Those who try to mislead their lender could have charges pressed against them – and could end up getting jail time.

  1. Appraisal

Okay, let’s imagine the best possible outcome. You found the property you wish to purchase, and you’ve been preapproved for the loan. Now what? 

The next step would be appraising the property.

As we explained earlier, it’s not uncommon for manual underwriting mortgage companies to request an appraisal. Again, this has to do with your collateral and loan-to-value ratio. The lender must ensure that you’re not borrowing more than the property is worth.

The goal here is for the mortgage lender to be protected against lending more funds than it could potentially recover in the worst-case scenario.

All information regarding the property, square footage, sales data, current condition, and so on can be found in the Appraisal Report.

  1. “Tittle Search”

To sum it up, loans will not be approved in case the property has legal claims on it. That’s why the lender also needs to perform a “title search” and ensure that you can transfer the real estate property. 

They’ll research the property’s history, claims, liens, pending legal actions, unpaid taxes, and the like. And yes, all of this can affect whether you will be approved for a mortgage or not.

Following the title search, an insurance policy is issued to guarantee accuracy. That said, in some cases, two policies – one protecting the lender and the other covering the owner of the property – will be issued.

  1. The Decision

After lengthy and comprehensive research, we’ve reached the final stage of the underwriting process – and that’s the decision-making part. Now, it’s time for the underwriters to issue a final decision regarding your loan application and decide whether you qualify for a mortgage or not.

There are three possible outcomes you can expect here:

  • Denied
  • Suspended
  • Approved (with conditions)

The underwriter could deny your loan application for reasons such as too much debt, a poor credit score, or insufficient funds, to name a few. But getting denied does not close the door for you. 

You can take steps to improve your financial situation and apply again in a couple of months – preferably for a smaller loan.


If your application has contingencies or the underwriter couldn’t verify specific points of your documentation – such as your income or employment – you might end up being suspended. 

If your application gets suspended, the lender will let you know if you can proceed with your application by providing additional documentation. 

Approved (With Conditions)

Of course, the best-case scenario is the one in which you’re approved for a mortgage. Here, the “conditions” part essentially means that your underwriter will approve your mortgage – as long as you meet their pending conditions. 

Some common approval conditions include proof of mortgage insurance, additional income or bank statements, business licenses, and marriage certificates. 

How Long Does The Process Last?

There is no fixed period here. The underwriter’s turn time depends on many different factors, like the complexity of your loan file and whether you need to provide additional information or not.

As we said, it’s not an automated process, so it might take longer than you expected.

The average time needed to close on a mortgage – from when the underwriter receives the application to when the loan is paid out – is 52 days, as of March 2021. 

As for the underwriting process itself, initial approval typically happens within 72 hours of the loan file being submitted. 

Is Manual Underwriting Bad?

No; quite the contrary: 

Working with an underwriter can be incredibly helpful because some circumstances and information can’t be accurately processed if you choose the automated method.

However, this is not the only advantage of the manual approach.

What Are Some Other Advantages?

Since this is a hands-on process, it gives the borrower more hope that their situation will be viewed from several angles – and as such, it may be the preferred approach in cases where the borrower:

  • Has a low credit score
  • Has a minimal credit history or lives debt-free
  • Is self-employed
  • Has had financial problems in the past

If you belong to one of these borrower categories – and this is, by no means, an exhaustive list – know that there’s a high chance that you’ll have to go through the manual process.


That’s about it for the topic of manual underwriting – but given that this might be a lot to take in at once, we figured a quick recap wouldn’t hurt. 

Here’s what you should take from this: 

The mortgage underwriting process can be divided into automated and manual. The manual method is an on-hand process that is handled by your underwriter.

Their job is to evaluate your financial information – including your credit card score, assets, bank statements, and credibility and determine whether you qualify for the mortgage or not.

The process consists of five stages you’ll have to go through – from pre-approval to property appraisal. However, the main point here is that you remain truthful about your finances and provide the underwriter with all the necessary documentation they need. 

You can be denied, suspended – or approved with conditions. Whatever happens, don’t get discouraged; you can almost always try again.

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