Conventional Manual Underwriting Guide
When Desktop Underwriter (DU) or Loan Product Advisor (LP) returns "Refer," conventional loans can still be approved through manual underwriting—but the rules are stricter than FHA or VA.
Key Differences from FHA/VA
- Stricter DTI limits - Max 36-43% vs FHA's 50%
- Higher credit requirements - Usually 680+ minimum
- No mortgage insurance with 20%+ down
- Higher loan limits - Up to $1,149,825 in high-cost areas
When Does Conventional Manual Underwriting Apply?
Unlike FHA and VA loans, conventional manual underwriting is less common and has stricter requirements. Here's when it might be needed.
- Self-employment income - Complex or declining income patterns
- Multiple properties - Rental income calculation issues
- Employment gaps - Recent job changes or gaps
- Asset documentation - Large deposits or gift funds
Not all lenders offer conventional manual underwriting. Those that do typically have these requirements:
- Minimum 680 credit score (some require 700+)
- Maximum 43% DTI (36% without compensating factors)
- Minimum 10% down payment (20% preferred)
- 6+ months reserves typically required
Conventional DTI Guidelines
DTI limits vary based on whether your loan receives automated approval or requires manual underwriting.
| Scenario | Max DTI | Min Credit Score | Notes |
|---|---|---|---|
| Standard (DU/LP Approve) | 45% | 620 | Automated approval with standard documentation |
| DU Approve/Eligible with Exceptions | 50% | 680 | Higher DTI allowed with strong compensating factors |
| Manual Underwriting (Refer) | 36% | 680 | Conservative limits when AUS returns Refer |
| Manual with Strong Factors | 43% | 700 | Extended limits with 2+ compensating factors |
Compensating Factors for Conventional Loans
Strong compensating factors can help you qualify with higher DTI ratios or offset other risk factors.
6+ months of mortgage payments in liquid assets after closing
LTV of 75% or less (25%+ down payment or equity)
Credit score of 740+ with no late payments in 24 months
New payment is within 5% of current housing expense
5+ years with same employer or in same industry
Significant discretionary income after all obligations
LTV, Down Payment & PMI Requirements
Your down payment affects both PMI requirements and manual underwriting eligibility.
| LTV Range | Down Payment | PMI Required? | Manual UW Eligible? |
|---|---|---|---|
| 80% or less | 20%+ | None required | |
| 80.01% - 85% | 15-19.99% | Required | |
| 85.01% - 90% | 10-14.99% | Required | |
| 90.01% - 95% | 5-9.99% | Required | Limited |
| 95.01% - 97% | 3-4.99% | Required | Rarely |
Conventional Manual Underwriting Calculator
Check if you might qualify for conventional manual underwriting.
Significant Cash Reserves
StrongLow Loan-to-Value Ratio
StrongExcellent Credit History
StrongMinimal Payment Shock
ModerateLong-Term Employment
ModerateStrong Residual Income
ModerateYour Results
Your DTI
35.0%
Your LTV
80%
Credit Score
700
Strong Factors
0
Conventional Manual Underwriting Success Stories
Real examples of borrowers who qualified through conventional manual underwriting.
Challenge:
DU returned Refer due to declining income trend on tax returns (COVID impact)
Solution:
Manual underwriting with 12 months of bank statements showing income recovery, 740 credit score, and 25% down payment
Outcome:
Approved for $650,000 conventional loan with no PMI
Challenge:
Less than 2 years in current position, AUS flagged employment gap
Solution:
Manual underwriting demonstrated same industry skills, higher salary, and 8 months reserves
Outcome:
Approved for $485,000 conventional loan with 10% down
Challenge:
Complex income from rental properties, DU couldn't properly calculate
Solution:
Manual underwriting with full rental analysis, 30% down, and strong cash flow documentation
Outcome:
Approved for $525,000 investment property loan
Conventional Manual Underwriting FAQ
Yes, generally. Conventional manual underwriting has stricter DTI limits (36-43% vs FHA's 50%), higher credit score requirements (680+ vs FHA's 500+), and fewer lenders offer it. However, it can be worthwhile for borrowers who want to avoid FHA mortgage insurance.
Yes! If you put 20% or more down, you won't need PMI regardless of whether your loan is manually underwritten. This is one advantage of conventional loans over FHA, which requires mortgage insurance for the life of the loan.
The standard maximum is 36% without compensating factors. With two or more strong compensating factors (like excellent credit, significant reserves, or low LTV), some lenders may approve up to 43% DTI.
No. Many lenders only approve loans that receive automated approval from DU or LP. If you need manual underwriting, you'll need to find a lender that specifically offers this option—often portfolio lenders or credit unions.
It depends on your situation. Choose FHA if you have lower credit scores (below 680), higher DTI (above 43%), or limited down payment. Choose conventional if you have good credit (680+), can put 20%+ down to avoid PMI, or need a loan amount above FHA limits.
Need Help with Manual Underwriting?
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