Why You Might Need Manual Underwriting
Automated systems are known for the decisions they make regarding mortgage loans. If you meet the specified criteria, the loan will be approved. For example, lending companies look for credit scores above a certain level. If your scores are too low, your application will be denied. Similarly, lenders want to see debt-to-income ratios below 43%. However, the definition of “income” can be tricky, and the financial institution may not be able to account for all of your income.
Considered Factors
Many factors could hinder your mortgage loan application. This includes a debt-free lifestyle, building a new credit history, past financial issues, and high debt-to-income ratios. It is advisable to keep your level of debt relatively low compared to income, but in some cases, higher ratios can help you get approved. Government loan programs, cash reserves, and additional income are some other factors that can support the approval request.
How to Get Approved
If you don’t have the standard credit score or income profile for approval, you should use the resources available to you to prove your ability to repay the loan. Through manual underwriting, someone will review your financial situation in detail to determine whether your application should be approved or not. You should have a substantial offer of income and assets or other resources to prove your ability to make payments.
Compensating Factors
Compensating factors make you more attractive for approval, and it may be necessary to provide them to get approved. These factors are defined as the specific guidelines set by banks or loan programs, and each factor you meet increases your chances of getting approved. There are many factors you need to uncover and meet, including reserves, experience, lack of frivolous debt, additional income, and others.
Process Tips
You should plan for a slow and time-consuming process. An actual person needs to review every document you have submitted and determine if you qualify for the loan or not. Getting a mortgage always requires documentation, and manual underwriting requires even more documentation. Some lenders may ask for up to 12 months of bank account statements in addition to several years of tax records, while others may require more documentary information. Therefore, you should be prepared for that. You should also allocate enough time in the home-buying process before closing and include a financing contingency so you can recover your funds if the banks deny your application.
Source: https://www.thebalancemoney.com/why-you-might-need-manual-underwriting-4116922
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