Compensating factors are strengths in your application that let an underwriter approve a loan that's marginal on standard guidelines. Examples: substantial cash reserves, large down payment, low LTV, long-term employment stability, minimal credit utilization, conservative use of consumer credit.
Compensating factors are how FHA loans go above 43% DTI (up to 50%+), how VA loans qualify borrowers with debt that conventional won't touch, and how manual underwriting saves files that automated underwriting refers back.
When you're close to a limit, stack compensating factors before applying. Three months of additional savings, paying off a credit card, or proving 6+ months of reserves can all turn a refer into an approval.