Choosing The Right Lender With No Overlays On Home Purchase

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Choosing The Right Lender With No Overlays On Home Purchase

This BLOG On Choosing The Right Lender With No Overlays On Home Purchase Was UPDATED On October 8th, 2018

The Importance Of Choosing The Right Lender

Choosing The Right Lender with no overlays is extremely important for mortgage borrowers with prior credit issues:

Examples of prior credit issues include the following:

  • prior bankruptcy
  • prior foreclosure
  • prior short sale
  • prior deed in lieu of foreclosure
  • outstanding collections
  • charge off accounts
  • higher debt to income ratios
  • do not have verification of rent
  • lower credit scores
  • late payments after bankruptcy and foreclosure
  • recent late payments
  • just had a Chapter 13 Bankruptcy discharge
  • are in a current Chapter 13 Repayment Plan
  • have judgments
  • have tax liens
  • or have other credit and/or income issues

Not All Lenders Have Same Mortgage Guidelines On Government And Conforming Loans

Just because one lender says you do not qualify for a home loan does not mean that you do not qualify for a mortgage loan with another mortgage lender.

  • The first place borrowers think about when they need a home loan is to visit their local bank and apply for a home loan there
  • Unfortunately, banks are one of the toughest places to qualify for home loans
  • Requirements at banks are much tougher than mortgage lenders that have no lender overlays
  • Most banks have mortgage lender overlays
  • Overlays are additional mortgage lending requirements that are in addition to the minimum mortgage lending requirements that are required by FHA, VA, USDA, Fannie Mae, and Freddie Mac
  • For example, here is a case scenario:
    • The minimum credit score required to qualify for a FHA Loan by HUD, HUD is the parent of FHA, is 580 FICO
    • However, most banks will not touch anyone who does not have a credit score of at least 640 FICO
    • The bank has lender overlays on credit scores

 Typical Overlays By Mortgage Lenders

There are other lender overlays that banks and lenders have.

Here are examples of typical lender overlays imposed by lenders:

  • lender overlays on debt to income ratios
  • overlays on collection accounts
  • charge off accounts
  • lender overlays on verification of rent
  • overlays on credit tradelines
  • manual underwriting
  • gift funds: some lenders do not allow gift funds even though HUD Guidelines allows it

Choosing The Right Lender With High Debt To Income Ratios

There are many borrowers who do not qualify for a mortgage loan because their debt to income ratios are too high:

  • Many lenders have overlays on debt to income ratios especially with FHA Loans
  • Under FHA Guidelines On Debt To Income Ratios, the maximum debt to income ratios permitted is 56.9% DTI for Borrowers with credit scores of at least 620
  • However, most banks and lenders will cap the debt to income ratio limits to 45% DTI
  • Some mortgage companies will go to debt to income ratio caps of 50% DTI
  • This exception may be made as long as Borrower has credit scores of at least 680 FICO
  • This creates a problem for borrowers who have debt to income ratios of 56.9% DTI and have lower credit scores
  • Choosing The Right Lender with no lender overlays on debt to income ratios like myself is crucial in securing a FHA Loan
  • Gustan Cho Associates at Loan Cabin Inc. has no lender overlays on FHA Loans
  • Whatever the HUD Guidelines On Debt To Income Ratios is what we go by
  • I go by and can approve and close any borrower who meets the minimum HUD Lending Guidelines
  • FHA also allows as many non-occupant co-borrowers to be added to the main borrower for borrowers who have higher debt to income ratios

Choosing The Right Lender With Outstanding Collection And Charge Off Accounts

Under FHA Guidelines On Collection Accounts, outstanding collection accounts and charge off accounts do not have to be paid to qualify for FHA Loans.

  • However, most banks and lenders will require that all outstanding collection accounts and charge off accounts to be paid in full
  • As part of their own overlays, these lenders require zero balance be recorded on the borrower’s credit report before proceeding with the mortgage process
  • This is not necessary if borrowers choose the right mortgage lender
  • Choosing the right lender who has no lender overlays is so crucial with borrowers with many collection and charge off accounts
  • I have so many borrowers who contact me and were told that they do not qualify by multiple other lenders because they had outstanding collection and charge off accounts
  • I ended up approving and closing their FHA loans without them needing to pay their outstanding collection and charge off accounts

Borrowers told they do not qualify for a FHA Loan unless they pay off your outstanding unpaid collection and/or charge off accounts, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com and I will be able to help you get your FHA Loan approved and closed in a timely manner.

Choosing The Right Lender With Outstanding Judgments And Tax Liens

Many mortgage companies will not take your mortgage loan file submitted into processing and underwriting if you have an outstanding judgment or tax lien on your credit report unless you have paid off the judgment and/or tax liens and the zero balance is reported on your credit report. There are two solutions to having judgments and tax liens where you can still have outstanding judgments and tax liens and still qualify for FHA Loans.

FHA will allow for those borrowers who have outstanding judgments or tax liens to qualify for FHA Loans if they have a written payment agreement with the judgment creditor and/or the Internal Revenue Service and have been making at least three monthly payments. The borrower needs to provide three months canceled checks to the mortgage lender. Once a written payment agreement has been made with the judgment creditor and/or the IRS, you cannot pre-pay the three months of payments upfront and need to make at least three months worth of payments.

  • The second choice is borrowers can pay off  judgment and/or tax lien at or prior to closing of home loan
  • Borrowers will need a payoff letter from the judgment creditor and/or IRS and pay the funds to the title company
  • The title officer will record the payment in full
  • Consumers can pay a negotiated amount of the judgment as long as the judgment creditor will release the judgment

Borrowers told they do not qualify by other lenders due to their overlays or got a mortgage loan denial, please give us a shout at 262-716-8151 or text for faster response. Or  email us at gcho@gustancho.com. Let me evaluate your situation and see if we can make it work. I am available 7 days a week, evenings, weekends, and holidays to take your calls and answer any questions you may have.

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