Choosing The Right FHA Mortgage Lender With No Overlays

This BLOG On Choosing The Right FHA Mortgage Lender With No Overlays Was UPDATED And PUBLISHED On July 5th, 2020

How to Choose the Right FHA Mortgage Lender Without Overlays

Choosing the right FHA Mortgage Lender is extremely important for borrowers who need to qualify for FHA Loan with no mortgage lender overlays.

  • FHA, the Federal Housing Administration, is part of the United States Department of Housing and Urban Development, HUD, and is a governmental agency
  • FHA is not a mortgage lender
  • The role of FHA is to insure home loans that are FHA approved
  • An FHA Mortgage Lender is a private mortgage company
  • Example of lenders are banks or mortgage companies that have been approved by the Federal Housing Administration
  • These lenders are HUD Approved and given their blessings to originate, process, underwrite, and fund FHA Loans
  • For a mortgage borrower to get an FHA loan, they need to go to an FHA Approved Mortgage Lender

In this article, we will discuss and cover Choosing The Right FHA Mortgage Lender With No Overlays.

Importance Of Choosing The Right FHA Mortgage Lender

An FHA approved Lender either use their own funds through a warehouse line of credit or can broker an FHA home loan.

  • FHA has nothing to do with the funding of the FHA Loan
  • FHA will insure the FHA Loan originated and funded by private Lenders in the event if the FHA Loan defaults
  • In order for FHA to insure the FHA Loan that defaults Lenders need to follow the FHA lending guidelines
  • FHA has strict mortgage lending guidelines with regards to credit, prior bankruptcies and foreclosures, and debt to income ratios
  • As long as lender follows the HUD guidelines, FHA will insure the home loan in the event if the Loan defaults and goes into foreclosure
  • If Lender misses part of the FHA guidelines when processing and underwriting the loan, the Federal Housing Administration will not insure the Loan
  • This is the reason why Lenders may require many conditions on conditional loan approval
  • A lot of conditions requested may sound petty
  • But the mortgage company cannot take a chance of the Loan not being insurable by the Federal Housing Administration

Choosing the right FHA mortgage lender is crucial for borrowers with less than perfect credit or those with higher debt to income ratios.

Are All FHA Mortgage Lenders The Same?

Are All FHA Mortgage Lenders The Same?

All Lenders may have different mortgage loan eligibility requirements.

  • Just because they are an FHA Approved Lender does not mean they all go by minimum FHA Lending Guidelines
  • All FHA Approved lenders needs to meet the minimum lending guidelines set by FHA
  • As long as the FHA Mortgage Lender follows the FHA lending guidelines, the FHA Loan is insurable
  • However, many lenders have something call mortgage lender overlays
  • Overlays are additional lending guidelines on top of the minimum federal lending guidelines set by FHA
  • Choosing the right FHA mortgage lender is important for borrowers who need an FHA Loan with no investor overlays
  • For example, FHA minimum credit scores to qualify for a 3.5% down payment home loan is 580
  • However, many Lenders may have overlays on credit scores where they will not accept borrowers with credit scores of under 640
  • Most banks have a lot of overlays

Most banks will not accept any borrowers with credit scores of under 640 because of their overlays.

Examples Of Mortgage Lender Overlays

Most mortgage lenders will have mortgage lender overlays.

  • Besides overlays on credit scores, there are overlays on debt to income ratios
  • For example, FHA allows a maximum back end debt to income ratio up to 56.9% for borrowers with credit scores of higher than 620
  • Many Lenders may have a debt to income ratio overlays
  • They will cap the back end debt to income ratios to 45% instead of the 56.9% allowed
  • Other Lenders may have overlays on debt to income ratios
  • They will extend the debt to income ratios to 55% if the borrower has credit scores of 680 or higher
  • FHA minimum debt to income ratio guidelines are capped at 56.9% only with a 620 credit score
  • Other examples of overlays are FHA 203k Loans
  • Most Lenders have overlays on FHA 203k Loans
  • They require a minimum credit score of 640
  • I have just closed on an FHA 203k Loan last week where the borrower had a 582 credit score

FHA only requires a 580 credit score on all FHA Loans which includes 203k Loans.

Choosing The Right FHA Mortgage Lender With No Overlays

How to Choose the Right FHA Mortgage Lender Without Overlays

Borrowers looking for an FHA Mortgage Lender with no overlays, look no further.  Gustan Cho and his associates are specialists in FHA Loans and have no lender overlays  As long you get an automated approval per Automated Underwriting System and can provide the conditions on the AUS, we will close your FHA home loan and close it on time.  Please contact us at GCA Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at [email protected]  You can also register for our free daily mortgage and real estate newsletter at www.gustancho.com.

Related> FHA Mortgage Loans With No Overlays

Related> FHA Lender With No Overlays In California

Related> Overlays With FHA Loans

Leave a comment