Last Updated June 17th, 2025
If you’ve been told you don’t qualify for a VA loan through traditional channels, don’t lose hope just yet. There’s a lesser-known process called manual underwriting that might just be the solution.
Manual underwriting takes a more comprehensive approach to evaluating your financial profile, allowing veterans who don’t meet automated underwriting criteria to still secure a VA loan. It’s an opportunity to show lenders that you’re a good candidate, even if your credit score or debt-to-income ratio doesn’t fit the typical mold.
Let’s do a deep dive into manual underwriting for a VA loan, including how it works, what lenders are looking for, and tips to increase your chances of approval. We’ll also share some expert insights and real-life examples to help you understand the process better.
In this Article
What is Manual Underwriting?
Manual underwriting occurs when a lender’s automated underwriting system (AUS) — such as Desktop Underwriter® or Loan Prospector® — cannot issue an approval. Instead of declining the file outright, the lender assigns a human underwriter to evaluate the borrower’s entire financial profile. This individualized review is particularly valuable for VA loan applicants who have credit challenges or other complexities that do not fit neatly into an automated algorithm.
Why it Matters: Automated engines rely heavily on credit scores, debt‑to‑income (DTI) ratios, and rigid risk models. A single derogatory event — even one that is several years old — can trigger a refer/eligible or outright ineligible result. Manual underwriting provides Veterans and service members with a second level of consideration, ensuring that unique circumstances are fairly weighed rather than automatically rejected.
Credit: The #1 Obstacle for VA Borrowers
Credit health is the leading reason VA loan files are kicked from automated to manual status. According to the Consumer Financial Protection Bureau (CFPB), nearly 26 percent of military borrowers have at least one 30‑day late payment on file in the prior 24 months. Even if you meet the VA’s broad credit eligibility (the VA itself has no official minimum score), most lenders impose “overlays” that require a 580–620 FICO. Falling short of that threshold almost guarantees manual review.
Common credit‑related triggers include:
- Low or “Thin” Credit Scores: A limited number of trade lines, short credit history, or scores under a lender’s minimum.
- Recent Derogatory Events: Bankruptcy, foreclosure, short sale, or consumer credit counseling within the last two to four years.
- High Revolving Utilization: Credit‑card balances > 50 percent of the limit can drop scores rapidly.
- Collections and Charge‑Offs: Even small medical collections can raise red flags until resolved or documented.
Credit Tip: Pull your free annual credit reports from each bureau before applying. Dispute inaccuracies early; rapid re‑scoring is possible but may delay closing.
How Does Manual Underwriting Work?
- Automated Referral: Your application is run through an AUS. If it returns “Refer” or “Refer/Caution,” the lender decides whether manual underwriting is feasible.
- Document Gathering: You’ll supply full income and asset documentation: pay stubs, W‑2s/1099s, two years of tax returns (if self‑employed), bank statements, and any LOEs (letters of explanation).
- Deep Credit Review: The underwriter reviews not just the score, but payment patterns, length of credit history, and the context behind any delinquencies.
- Income & Employment Verification: Verbal verifications, Verification of Employment (VOE) letters, or profit‑and‑loss statements for self‑employed borrowers may be required.
- Debt‑to‑Income & Residual Income Calculations: The VA’s benchmark remains a 41 % DTI, but manual approvals may stretch to 55 % if residual income and compensating factors are strong.
- Compensating Factor Analysis: Large cash reserves, minimal payment shock, military allowances, or a long job tenure can outweigh weaker items.
- Conditional Approval or Adverse Action: The underwriter issues “conditions” (e.g., pay off a collection, supply updated bank statements) or explains a denial if risk is too high.
Reasons Your VA Loan Might Go to Manual Underwriting
- Credit Score Below Lender Minimum: Many VA lenders start at 600–620; scores below that trigger manual review. Our lenders can approve borrowers with scores as low as 580 in some cases.
- DTI Ratio Above 41 %: High student‑loan or auto‑loan debt pushes the DTI over standard guidelines.
- Recent Financial Hardships: Chapter 13 bankruptcy, foreclosure, or short sale within seasoning windows.
- Limited or Non‑Traditional Credit: Borrowers new to credit or those who rely on alternative credit (phone, insurance, rent) instead of credit cards.
- Unverifiable Income: Gig‑economy or tip‑based earnings without consistent historical documentation.
What Do Lenders Look for During Manual Underwriting?
| Evaluation Area | Primary Focus | Ideal Benchmarks | Compensating Factors |
|---|---|---|---|
| Income Stability | Two‑year job history in same line of work | No employment gaps >30 days | Military allowances, re‑enlistment contract, or new job with higher pay |
| Credit Profile | On‑time payments past 12 mo | No 30‑day late in last 12 mo | Paying down revolving debt below 30 % utilization |
| DTI Ratio | Total monthly debt ÷ gross income | ≤ 41 % | Strong residual income; > 3 months cash reserves |
| Residual Income | VA regional requirements | ≥ Guideline by household size | Child‑care cost exclusion, tax‑free BAH/BAS income |
| Assets & Reserves | Liquid funds post‑closing | ≥ 2 months PITI | 401(k) or TSP balances available if hardship withdrawal allowed |
Benefits of Manual Underwriting
- Human Flexibility: Real people can weigh context, not just credit algorithms.
- Alternative Credit Consideration: On‑time rent, utilities, cell‑phone, and insurance payments can be added as “non‑traditional” trade lines.
- Opportunity to Explain: LOEs let you describe medical emergencies, deployment, or temporary layoffs.
Potential Drawbacks
- Longer Processing Times: Manual files often take 5–10 business days longer.
- Stricter Documentation: Expect additional proofs (e.g., canceled rent checks, VOD forms).
- Higher Scrutiny on Reserves: Some lenders require 3–6 months of mortgage payments in the bank.
Strategies to Strengthen Your Manual Underwriting File
- Lower Revolving Balances: Paying credit cards to <30 % utilization can raise scores 20–50 points in 30 days.
- Document Alternative Credit: Provide 12 months of on‑time rent or utility payments. Many underwriters accept screenshots of online ledgers plus bank statements.
- Increase Cash Reserves: Shift tax refunds, combat pay, or bonus income into savings. Liquid reserves greatly ease risk concerns.
- Stabilize Employment: Avoid job changes mid‑process. If unavoidable, furnish a signed offer letter and first pay stub as soon as available.
- Write Clear LOEs: Briefly cite dates, circumstance, and corrective action for each derogatory event.
Comparison of VA Loan Approval Pathways
| Feature | Automated Underwriting (AUS) | Manual Underwriting |
|---|---|---|
| Primary Decision Metrics | Credit score, DTI, LTV | Full credit profile, residual income, compensating factors |
| Typical Turnaround | Seconds to minutes | 3–10 business days |
| Minimum Credit Score | 580–620 (lender overlay) | 500–579 possible (few lenders) |
| Documentation Level | Standard | Full/forensic; may require rent verification, asset seasoning |
| Rate Impact | Slightly better on average | Same program rates; credit score still drives pricing |
2025 Housing & Lending Climate Snapshot
The Federal Housing Finance Agency reports that home‑price growth moderated to 3.9 percent year‑over‑year through Q1 2025. Mortgage rates hover in the 5.75 % – 6.25 % range for well‑qualified VA borrowers. Tight inventory keeps competition high, but VA’s $0 down advantage remains a differentiator. For credit‑challenged Veterans, manual underwriting may be the only route to capitalize on their earned benefit before prices climb again.
FAQ: Manual Underwriting on a VA Loan
1. Can I request manual underwriting if the AUS denies me?
Yes. Ask your loan officer whether their investor allows manual underwriting. Not all lenders participate, so shop around.
2. What credit score is “too low” for automated approval?
Every lender is different, but AUS approvals below 600 FICO are uncommon. Scores in the 500s typically require manual review and strong compensating factors.
3. How long does manual underwriting add to the process?
Expect an additional one to two weeks, depending on how quickly you supply documentation.
4. Will my interest rate be higher if I go manual?
Not automatically. VA rates are primarily driven by credit score, not the underwriting path. However, certain lenders may charge slightly higher fees for lower‑score loans.
5. Do I need reserves if my DTI exceeds 41 %?
Typically, yes. Two to six months of principal, interest, taxes, and insurance (PITI) in the bank helps offset higher DTI.
6. Can alternative credit (rent, utilities) replace a traditional score?
Yes. Under VA Lender Handbook Chapter 4, documented on‑time rent and utility payments can establish credit where none exists.
7. Is manual underwriting available for VA cash‑out refinances?
Generally, yes, though equity and seasoning requirements still apply. Some investors cap cash‑out to 90 % loan‑to‑value for manually underwritten files.
8. What happens if my manual file is denied?
You’ll receive an adverse‑action notice explaining key factors. Work on credit repair, debt reduction, or accrual of reserves, then reapply in 3–6 months.
9. Does manual underwriting affect my VA entitlement?
No. Approval method does not use additional entitlement beyond the loan amount itself.
10. Are there other programs if manual underwriting fails?
Consider FHA 203(k) or USDA Rural Development loans. Both allow manual underwriting and lower credit thresholds, though they lack certain VA advantages.
The Bottom Line
Manual underwriting is a vital lifeline for Veterans whose credit profiles fall outside automated norms.
By showcasing strong residual income, documenting alternative credit, and bolstering cash reserves, borrowers can overcome low scores or past hardships and secure competitive VA financing.
Partner with a lender experienced in manual underwriting and stay proactive with documentation to keep your home‑buying journey on track.
Ready to see if we can get You Approved? Speak to our Lenders Now
Levi Rodgers is a real estate expert and retired U.S. Army Green Beret. He writes about VA loans, homeownership, and helping Veterans buy homes. After service, he built a top real estate team and shares trusted advice for first-time and military buyers. Get to know Levi Rodgers
