FHA Loans And FHA Lender Overlays
FHA Loans are residential mortgage loans that is originated by banks and mortgage companies that meet FHA lending guidelines. FHA, Federal Housing Administration, is part of the United States Department of Housing and Urban Development. FHA is a government entity whose function is to insure and guarantee FHA approved banks and mortgage companies against loss from FHA mortgage loan borrowers. In order for FHA to insure FHA Loans, mortgage lenders who originate and fund FHA Loans needs to follow FHA lending guidelines. If a FHA approved mortgage lender does not follow and abide by FHA lending guidelines on a FHA Loan, that FHA Loan will not be insureable and will not be covered in the event the FHA Loan borrower defaults on his or her FHA Loan. FHA Lender Overlays are additional lending guidelines that is set by individual FHA mortgage lenders that is above and beyond the minimum FHA mortgage lending guidelines.
Basic Minimum FHA Loan Requirements
FHA has minimum FHA Loan Requirements. Basic minimum FHA Loan Requirements are that the mortgage loan applicant needs a 580 FICO credit score to qualify for a 3.5% down payment FHA home purchase mortgage loan. FHA mortgage lenders can have FHA Lender Overlays on credit scores where they can require a 640 FICO credit score even though the minimum credit score required is 580 FICO per FHA. Same with debt to income ratios. Maximum debt to income ratios allowed for FHA Loans with credit scores higher than 620 FICO is 56.9%. However, mortgage lenders can have FHA Lender Overlays that are below the maximum debt to income ratios allowed by FHA. Most banks will not accept mortgage loan applicants with debt to income ratios higher than 45%. FHA allows mortgage loan applicants with unpaid collection accounts to qualify for FHA insured mortgage loans without having them to pay off the collection accounts. However, many mortgage lenders will require that they pay off unpaid collection accounts in order for them to get qualified with their lending institution.
What Are FHA Lender Overlays
There are two types of FHA lending guidelines. One set by HUD and the second set of guidelines are the mortgage lending guidelines which are called FHA Lender Overlays which is set by individual FHA approved mortgage lenders. Most FHA approved mortgage lenders have additional FHA Lender Overlays on top of the minimum FHA lending guidelines. A FHA approved mortgage lender does not have to just go off the FHA minimum mortgage lending guidelines. They must meet the minimum FHA minimum lending requirements, however, they can have higher standards than the minimum lending FHA guidelines. Again, these additional mortgage lending guidelines are called FHA Lender Overlays.
Minimum Credit Tradelines
FHA does not require a minimum amount of credit tradelines for FHA Loan borrowers. However, many mortgage lender have credit tradelines FHA Lender Overlays and will require minimum credit tradelines. Credit tradelines are credit accounts that report to the three credit bureaus with at least a 12 month on time credit payment history. Some mortgage lenders require credit tradelines that have been seasoned 24 months and no late payments in the past 24 months.
FHA Mortgage Lenders With No FHA Lender Overlays
There are mortgage lenders such as myself that do not have any FHA Lender Overlays. We just go off the minimum FHA Lending Guidelines set by HUD. If a FHA mortgage loan applicant has an approve/eligible per automated underwriting system, that mortgage loan applicant will close on their FHA Loan as long as they can provide the conditions on the DU FINDINGS. If you are looking for a FHA mortgage lender with no FHA Lender Overlays, contact Gustan Cho Associates at 262-716-8151.