Difference Between FHA Guidelines And Lender Overlays

FHA Guidelines Versus Lender Overlays:

On this article we will discuss FHA Guidelines Versus Lender Overlays. All FHA mortgage lenders need to follow FHA Guidelines if they want their FHA Loans they originate and fund insured by the Federal Housing Administration against borrower defaulting on their FHA Loans and in order to be able to sell all of their FHA Loans they originate and fund to the secondary mortgage markets. If a mortgage lender does not abide by FHA mortgage lending guidelines and the FHA file misses any of the FHA mortgage lending guidelines when the FHA DE mortgage underwriter has issued a clear to close, then the FHA Loan is not insurable and cannot be sold on the secondary market. FHA mortgage lenders who are mortgage bankers have a warehouse line of credit where they use this line of credit to fund mortgage loan borrower’s FHA Loans. Once they fund borrower’s mortgage loans, mortgage lenders package these FHA Loans that they fund and sell them to the secondary mortgage markets and with the proceeds of the sale of the FHA mortgage notes, they pay down their wholesale line of credit so they can free it up to use it to originate and fund more FHA mortgage loans.  HUD, the United States Department of Housing and Urban Development, is the parent of FHA and has created the HUD FHA 4000.1 Handbook, which is over 800 pages of FHA Guidelines. Every single FHA Loan needs to meet FHA guidelines in order for it to be insurable and sellable on the secondary market. All FHA mortgage lenders follow FHA guidelines, however, most FHA mortgage lenders have mortgage lender overlays which are mortgage lending guidelines that are on top of the minimum FHA guidelines. Just because a mortgage loan applicant meets the minimum FHA mortgage lending guidelines does not mean that a bank or mortgage lender will originate and fund the FHA Loan. Some FHA mortgage lenders have tougher requirements than others. Banks are known to have tougher mortgage lending guidelines than most mortgage companies.

FHA Guidelines Versus Lender Overlays On Credit Score Requirements

A substantial percentage of my FHA mortgage loan borrowers come to me because they either did not qualify at another mortgage lender or were denied a FHA Loan by another FHA mortgage lender due to that mortgage lender overlays. FHA Guidelines on credit scores is that to qualify for a 3.5% down payment FHA Loan, the minimum credit scores required by the mortgage loan borrower is 580 FICO. However, most banks and mortgage lenders have FHA mortgage lender overlays on credit scores where they will not accept any mortgage loan borrowers without a 640 FICO minimum credit score. Even though FHA will insure FHA mortgage lenders on FHA mortgage loan applicants with 580 FICO credit scores, they do not care and want to set higher standards for their lending institution and will create a higher credit score minimum requirement. This is not illegal and mortgage lenders are allowed to do this and are not required to accept the minimum FHA credit score requirements set by HUD. If you are looking for a FHA mortgage lender that has no mortgage lender overlays on credit scores and will originate and fund FHA mortgage loan borrowers with credit scores down to 580 FICO, contact me at 262-716-8151. I am available 7 days a week and have no FHA mortgage lender overlays.

FHA Guidelines Versus Lender Overlays On Debt To Income Ratios

FHA Guidelines on Debt To Income Ratios are as follows:

  1. If a FHA mortgage loan borrower has credit scores of 620 FICO or higher, the maximum debt to income ratios required to qualify for a FHA insured mortgage loan is 56.9% DTI.
  2. If a FHA mortgage loan borrower has credit scores of under 620 FICO, then the maximum debt to income ratios required to qualify for a FHA insured mortgage loan is 43% DTI.

However, many banks and mortgage lenders will have FHA mortgage lender overlays on debt to income ratios where they will cap debt to income ratios to 45%. Some FHA mortgage lenders will go up to 50% debt to income ratios if the mortgage loan borrower has credit scores of higher than 680 FICO. If you have higher debt to income ratios and were told you do not qualify for a FHA Loan by other banks and mortgage lenders do to their FHA overlays on debt to income ratios, contact me at 262-716-8151. I have no FHA lender overlays on debt to income ratios and can go up to 56.9% DTI.

FHA Guidelines Versus Lender Overlays On Collection Accounts

FHA does not require FHA mortgage loan borrowers to pay off collection accounts with outstanding balances. However, most banks and many mortgage lenders will require that their borrowers do not have any outstanding collection account balances in order for them to qualify for a FHA Loan with their institution. This is not the case and we do not require collection accounts with outstanding balances to be paid off. Charge offs and medical collection accounts are exempt from debt to income calculation requirements. With non-medical collection accounts with outstanding balances of greater than $2,000, FHA requires that 5% of the outstanding collection account balance be used to calculate the borrower’s debt to income ratios. If the 5% of the outstanding collection account balance is too much where the borrower cannot qualify for the FHA Loan due to higher debt to income ratios, FHA will allow the FHA mortgage loan borrower to enter into a written payment agreement with the creditor and/or collection agency and set up a payment agreement and that monthly payment agreement will be used in lieu of the 5% of the outstanding collection account balance. If you are told that you need to pay off all of your collection accounts by a different lender and told you do not qualify due to their mortgage lender overlays on collection accounts, please contact us at 262-716-8151. We have no lender overlays on collection accounts and will be able to help you. We have no FHA lender overlays with FHA Loans.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

Comments are closed.