New to this? Start with how mortgage underwriting really works.
What sends an FHA file to manual
The automated system may return a "refer" for a lower credit score, limited credit, high debt, or a past credit event. Some situations require a manual underwrite on their own, such as a late mortgage payment in the last 12 months, significant disputed accounts, or no credit score at all. A refer isn't a denial, but not every lender will manually underwrite FHA.
The debt ratio limits
Unlike VA, FHA manual underwriting has firm ratio caps, and they rise with compensating factors:
| Your file has | Housing ratio | Total debt ratio |
|---|---|---|
| No compensating factors | 31% | 43% |
| One compensating factor | 37% | 47% |
| No discretionary debt | 40% | 40% |
| Two compensating factors | 40% | 50% |
Based on HUD manual underwriting guidelines. Files with very low or no credit scores are typically held to the lowest tier. Confirm with your lender.
FHA manual underwriting debt ratio tiers rise with compensating factors
No compensating factors
31% / 43%
One compensating factor
37% / 47%
Two compensating factors
40% / 50%
Housing ratio / total debt ratio. Simplified.
Each compensating factor raises the ratio limits.
The compensating factors that count
Cash reserves: verified savings after closing equal to at least three months of house payments.** Minimal payment increase:** your new housing payment is no more than about $100 or 5% higher than what you pay now, whichever is less.** Residual income:** your leftover income meets VA's residual income standard.** Additional income:** verified income that isn't being used to qualify, like part time or bonus income without enough history.
Credit on a manual file
The underwriter reviews your full history, with the most weight on the last 12 months. Expect to verify rent payments, often with 12 months of canceled checks or bank statements, and to explain late payments or collections. If you have no credit score, FHA can use nontraditional credit like rent, utilities and insurance payment history.
Which FHA manual tier do you fit?
Compensating factors you have:
Simplified estimate. Your underwriter makes the final determination.
How to build a file that fits
Pay down a small debt to drop your total ratio under the next tier. Keep three months of payments in savings, since reserves are one of the easiest factors to add. Choose a price that keeps your payment close to your current rent. Document every source of income. And keep every payment on time while you shop.
FHA manual vs VA manual
If you're a veteran, VA manual underwriting is usually more forgiving: no hard ratio cap, and strong residual income can carry a high debt ratio. See VA manual underwriting.
Two factors, one approval
Keisha's score was 571 and her file returned a refer. Her total debt ratio came in at 48%, too high for the base tier.
She had four months of payments in savings, and her new payment was only slightly above her rent. Two compensating factors opened the 40% and 50% tier, and she closed with 10% down.
Frequently asked questions
What is the max DTI for an FHA manual underwrite?
31% housing and 43% total with no compensating factors, up to 40% and 50% with two compensating factors.
Do I need reserves for an FHA manual underwrite?
Not always, but three months of reserves is one of the most useful compensating factors. Three and four unit properties require reserves.
Can I get an FHA loan with no credit score?
Yes, using nontraditional credit like rent and utility payment history, with a manual underwrite.
Why did my lender refuse to manually underwrite?
Many lenders don't offer manual FHA. A broker can find one that does.