FHA Manual Underwriting Guide
When a computer says "Refer," a human underwriter reviews your file. Understand the DTI limits, compensating factors, and LTV requirements that determine your FHA loan approval.
Quick Facts
- Manual review when AUS returns "Refer" status
- DTI limits range from 43% to 50% based on strengths
- 96.5% LTV (3.5% down) available with 580+ credit
- Compensating factors can expand your approval chances
What is Manual Underwriting?
In simple terms, manual underwriting is when a human—not a computer—decides if you can afford a home.
When the Automated Underwriting System (AUS) returns a "Refer" status, it doesn't mean automatic denial. It means your file needs human review.
- Thin credit file - Limited or no credit score
- High debt ratios - DTI above standard limits
- Recent credit events - Bankruptcy, foreclosure, or short sale
- Non-traditional credit - No FICO score available
Manual underwriting requires more documentation to prove you're a responsible borrower. Be prepared to provide:
- Extra pay stubs (often 60-90 days)
- Additional bank statements (3-6 months)
- Letters of explanation for credit events
- Proof of rental payment history
- Verification of assets and reserves
DTI Limits for Manual Underwriting
FHA uses strict tiers based on your compensating factors. The more strengths you have, the higher your allowed DTI.
| Compensating Factors | Max Housing Ratio (Front-End) | Max Total Debt Ratio (Back-End) |
|---|---|---|
No Compensating Factors Standard limits when no compensating factors are present | 31% | 43% |
One Compensating Factor Extended limits with one qualifying strength | 37% | 47% |
Two+ Compensating Factors Maximum limits with two or more qualifying strengths | 40% | 50% |
Understanding DTI Ratios
Front-End DTI (Housing Ratio): Your monthly housing payment divided by your gross monthly income. Includes principal, interest, taxes, insurance, and HOA fees.
Back-End DTI (Total Debt Ratio): All monthly debt payments (housing + car loans + credit cards + student loans) divided by gross monthly income.
Compensating Factors
These "strengths" in your application can help you qualify for higher DTI limits. Having two or more factors gives you the maximum flexibility.
At least 3 months of mortgage payments in verified liquid assets (bank accounts, investments)
Documented income increase of at least $100/month or 5% in the past 12 months
Sufficient money remaining each month after all housing and debt obligations are paid
New payment is no more than $100 or 5% higher than current housing expense
Continuous employment in same field for 2+ years with stable or increasing income
LTV Requirements by Credit Score
Your credit score determines the maximum loan-to-value ratio and minimum down payment.
Standard FHA minimum down payment
Higher down payment required for lower credit scores
Transactions between family members or business associates
FHA Manual Underwriting DTI Calculator
Enter your financial details and select your compensating factors to see if you qualify under FHA manual underwriting guidelines.
Principal, Interest, Taxes, Insurance, HOA
Car, credit cards, student loans
Enter your details and click "Calculate My DTI" to see your results
Real FHA Manual Underwriting Success Stories
See how borrowers just like you qualified for FHA loans through manual underwriting when automated systems said "Refer."
Challenge:
AUS returned 'Refer' due to DTI exceeding 43% standard limit. Traditional lenders declined her application.
Solution:
Manual underwriting approved with two compensating factors: 4 months of verified cash reserves ($12,000) and minimal housing payment increase (new payment only $85 more than rent)
Outcome:
Approved for $285,000 FHA loan with 3.5% down ($9,975). Monthly payment: $2,150 including MIP.
Challenge:
Bankruptcy on record plus self-employment income made automated approval impossible. Credit score rebuilt to 598.
Solution:
Manual underwriting with 10% down payment (required for sub-580 credit), strong residual income of $1,800/month, and 3 years of stable self-employment income
Outcome:
Approved for $225,000 FHA loan with 10% down ($22,500). Rebuilt credit and homeownership.
Challenge:
No FICO score available due to insufficient credit history. AUS couldn't process the application.
Solution:
Manual underwriting using non-traditional credit: 24 months of on-time rent payments, utility bills, and cell phone payments. Combined with strong income and 5 months reserves.
Outcome:
Approved for $375,000 FHA loan with 3.5% down. First-time homebuyer achieved homeownership despite no credit score.
Frequently Asked Questions
Not necessarily harder, but it requires more documentation. The underwriter will look at the full picture of your finances, which can actually work in your favor if you have compensating factors that a computer wouldn't consider.
Yes! If your credit score is 580 or higher, you can still qualify for the standard FHA 3.5% down payment (96.5% LTV), even with manual underwriting. The 10% down requirement only applies to credit scores between 500-579.
Each factor requires specific documentation. For cash reserves, you'll need bank statements showing the funds. For income increases, you'll need pay stubs and tax returns. Your loan officer will guide you on exactly what documents are needed for your specific situation.
FHA allows for "non-traditional credit" where you can establish creditworthiness through rent payments, utility bills, and other recurring payments. This requires manual underwriting and additional documentation, but it's possible to qualify without a FICO score.
Ready to Explore Your FHA Options?
Our loan officers specialize in FHA manual underwriting and can help you navigate the process with confidence.