How Does Manual Underwriting for Loans Work?

By Angela Monroe - October 31, 2019

Did you apply for a loan with a low credit rating or irregular income? Was manual underwriting for loans recommended? 

Relax. While the procedure is slower and more complicated than an automated underwriting, it actually boosts your chances of loan approval.

What is Manual Underwriting?

As the name suggests, manual underwriting involves the manual assessment of your financial situation and capacity for repayment after applying for a loan. A dedicated staff sorts through and reviews your important financial documents, such as your pay stubs, income tax returns and bank statements. 

These days, banks and fintechs depend heavily on technology to process loan applications. They use automated underwriting to screen applications. The program goes through your documents and reviews information based on programmed algorithms. When your details fail to meet the minimum requirements and qualifications set by the computer program, your application will be turned down.

Manual underwriting is typically done when your loan application does not pass the automated underwriting process. The lender believes that you can still qualify for a loan even if the computer program says otherwise.

Because specialized software programs are not used, the procedure can be demanding and may take a while to complete. Once the underwriter is convinced that you have the financial capacity to repay your loan on its agreed terms, you will be approved for the loan.

How Does a Manual Underwriting Work?

1. Collection of Financial Records

An underwriter collects financial documents like bank statements, pay stubs, income tax returns and other important records to determine your current income and financial situation. If you run a business or are self-employed, your accounting records will be checked. 

If you pledge an asset as collateral for the loan, the value of your property will be appraised. A title search will also be conducted to ensure that there are no liens or claims and other restrictions on your property.

2. Credit Check

The underwriter checks your credit reports to learn about your borrowing history and behaviour, as well as your existing debt obligations. Your repayment history and personal credit liability will be greatly factored in. 

If you’ve made on-time payments of your previous debts from the last 2 years and have refrained from using your credit card beyond the recommended 30% credit limit, you’re likely to have a good credit score. The higher your credit score, the higher your chances of loan approval and getting low interest rates and favourable terms.

3. Determining Your Income-to-Debt Ratio

The underwriter determines your income-to-debt ratio by dividing the number of monthly expenses you have by your monthly income. A low income-to-debt ratio attracts lenders because it suggests that you’re not overextending yourself on debt repayments and you’re regularly receiving adequate money to support your expenses.

4. Decision

After reviewing your financial records and credit report, the underwriter will decide to approve or turn down your loan request. If you have excellent credit record and financial standing, you’re likely to get approved outright. Other times, the underwriter may require more documents before giving you the thumbs up. If unfortunately, you do not pass the manual underwriting process, you will be provided with an explanation of the decision.

When Do You Need a Manual Underwriting?

Automated underwriting depends entirely on a computer-generated program. It works efficiently and objectively but it cannot “think” beyond what it was programmed to do.  The problem is that not all borrowers have the same predictable financial situation and credit records. It is best to be sent to manual underwriting if you have a rather complicated financial situation and credit profile that a computer program cannot understand. This is so that an actual person can personally assess your situation.

These “complicated situations” that a manual underwriting can efficiently handle include:

1. You have an irregular or non-traditional source of income

Not all income is earned by working 8 hours in the office. If you do not work in the corporate world and do not receive a monthly salary but are earning enough money to repay a debt obligation as a self-employed worker or entrepreneur, you have the right to secure financing. However, you might not pass the automated writing process if it uses a computer-generated program that requires your most recent pay stubs as proof of income.

2. You have a very short credit history or nothing at all

You might have a hard time passing the automated underwriting process if you are a first-time borrower and have not had debt or used a credit card in the past. This is because lenders have no way of assessing your attitude towards debt.

A manual underwriter, on the other hand, can conduct interviews and background check to assess your borrowing capacity. He or she can also check your payment history on utility bills and rent to have an idea of how you manage your finances and expenses.

3. You have a record of bankruptcy or foreclosure in the last 2 years

When a computer-generated program sees a “bankruptcy” or “foreclosure” record in your credit report, it’s likely to instantly reject your application. A manual underwriter, on the other hand, may consider the financial circumstances you had when you committed the negative action.

Get ready to present your source of income and current financial situation. If you can prove that you currently have a stable source of income to repay your debt, you might still be approved for a loan even if you have a bankruptcy or foreclosure record. Pledging collateral and providing a substantial down payment for your loan may also help you secure financing.

What documents should you prepare for manual underwriting?

If a lender decides to conduct a manual underwriting before making a decision on your loan application, gather all the necessary documents needed to support your creditworthiness claim. Your goal is to convince your lender that you are a responsible borrower and you have the financial capacity to repay the loan.

Here are the common documents by your underwriter, including: 

  • Most recent income tax return, if you have any
  • Latest paystubs, if you have any
  • Certificate of pension and other sources of income
  • Accounting records if you’re running a business
  • Payment for utilities like water, electricity and phone and internet services
  • Housing payment, including rent
  • Bank statements
  • A year-long bank deposit record showing an increasing balance
  • Medical insurance coverage
  • Car insurance payments
  • Life insurance payments
  • Major payments made to local stores
  • Rental payments for durable goods
  • Medical bills
  • Tuition fees and other education-related expenses
  • Payments for childcare

Manual Underwriting: A Few Things to Remember

1. Manual underwriting is usually a lender-by-lender issue

Some lenders suggest he manual underwriting process if they believe that you are potentially creditworthy. However, most large banks and credit unions do not offer this option. Those that provide a manual underwriting service may also charge a higher interest for your loan. It is best to call around before applying for a loan, especially if you have a less impressive credit record.

2. A manual underwriter can’t help you if your credit score is very low

Lenders have their own credit score requirements. If you have a very low credit score, they might not be willing to conduct a manual underwriting. It is always wise to work on improving your terrible credit score first before applying for any type of financing. Sometimes, all it takes to boost your score is disputing erroneous information on your credit report. Get your free credit report now!

3. There might be a lot of paperwork

Your underwriter might request a lot of documents from you to verify your financial capacity for repayment. Be patient for an expected slow and time-consuming process. Prepare to make a lot of digging up your various financial documents. In some cases, you may have to write an explanation letter that explains your situation. At the end of the day, getting a loan with a reasonable interest rate and terms is your goal. If you think that the financing you need is worth your precious time and energy gathering financial records, do so.


If you’ve undergone a manual underwriting process and it’s not successful, you can try other financing options. You can get a bad credit loan from trusted lending companies. This financing charges a higher interest rate than standard loans to compensate for the risk of lending you money despite having bad credit. You can also apply for a loan with co-signer. This person will share the same responsibility for the loan with you and thus need to have a good credit record to convince lenders.

Loans For People With Bad Credit helps people across Australia get a second chance at financing. Call us today on 1300 769 384 or fill out our Bad Credit Loan Pre-Approval form now.


See also:


How to Get Approved for Short-Term Bad Credit Loans

What Are Credit Bureaus and How Do They Affect Your Loan Application?

Top Myths About Bad Credit Personal Loans That Should Not Discourage You

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


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