Gustan Cho Associates is a mortgage company licensed in multiple states, specializing in FHA mortgage loans with no overlays. More than 75% of our clients couldn’t qualify or got turned down by other lenders. While most lenders add extra requirements, or overlays, to FHA, VA, USDA, and conventional loans, we don’t. At Gustan Cho Associates, we stick to a no-lender overlay business model for government and conventional loans.

What is a No Overlay Lender?

In the mortgage world, a “no overlay lender” is a lender that follows the basic rules set by major housing authorities like the FHA, VA, USDA, Fannie Mae, and Freddie Mac without adding any extra requirements. This approach is great for people who have struggled to get loans due to lower credit scores or higher debt, often making them seem risky to traditional lenders.

When lenders don’t add their own rules, they’re more likely to notice the positives in a borrower’s financial situation, such as a solid savings account, stable job history, or a big down payment.

This flexibility makes it easier for more people to get loans. This welcoming approach is a refreshing change from the stricter lending standards for many. It’s always smart for borrowers to shop around and compare different lenders to find the best match for their financial situation, especially if you’re looking for FHA Mortgage Loans With No Overlays. Click here to find a lender with No Overlay for your loan

Last Minute Loan Denial Due To Borrower Not Being Properly Qualified

The pre-approval stage of the mortgage process is crucial. The primary cause of late loan rejection is the failure of the loan officer to adequately assess the borrower before providing a pre-approval letter. Many loan officers will make sure to do this right.

They will run a tri-merger credit report, use the DU/LP automated underwriting system (AUS), get an AUS approval on findings, thoroughly review the borrower’s documents and income, and check the credit report for errors or misinformation. Once they approve the AUS finding, they will issue the pre-approval for the borrower.

The homebuyers then enter a real estate contract and start the mortgage process. However, sometimes, well into the mortgage process, the borrower gets denied by the mortgage underwriter. This happens because the lender has credit score overlays and debt-to-income ratio overlays on FHA loans, which isn’t true with FHA Mortgage Loans With No Overlays.

FHA Lender Overlays Explained

To be eligible for a 3.5% down payment on an FHA loan, a credit score of 580 is required. However, most lenders ask for a higher credit score, usually around 620 or more. The maximum debt-to-income (DTI) ratio allowed by the automated underwriting system (AUS) is 46.9% for the front end and 56.9% for the back end.

Many lenders have stricter credit score requirements due to their lender overlays, which often leads to loan denials. One common mistake loan officers make is not thoroughly understanding their company’s overlays. At Gustan Cho Associates, we offer FHA Mortgage Loans With No Overlays. We rely strictly on AUS findings or manual underwriting guidelines, making it easier for borrowers to get approved.

HUD-Approved Lenders Originate And Fund FHA Loans

FHA mortgage loans present a great opportunity for individuals purchasing their first home and those with imperfect credit, reduced credit scores, and increased debt-to-income ratios. The Federal Housing Administration (FHA) offers financial assistance to eligible borrowers a part of the U.S. Department of Housing and Urban Development (HUD). This support is designed to aid qualified borrowers.

HUD itself isn’t a lender. It doesn’t handle FHA loans’ origination, processing, underwriting, or funding. Instead, the FHA ensures loans originate from and are funded by private lenders. If a borrower defaults and the loan forecloses, the FHA will cover some of the lender’s losses. To get this insurance, HUD must approve lenders and follow HUD guidelines when underwriting FHA loans. This ensures that FHA Mortgage Loans With No Overlays remain accessible and beneficial to a wider range of home buyers.  Click here to apply for FHA Loans

The Reason Why FHA Loans Are So Popular

FHA Loans are highly favored as a mortgage program in the U.S. for individuals purchasing their first home, particularly those with lower credit scores, poor credit history, or elevated debt-to-income ratios. These loans are a great option for people with less-than-perfect credit and higher debt-to-income ratios, making homeownership accessible for many.

A minimum credit score of 580 is required to be eligible for a 3.5% down payment on an FHA loan. If the credit score ranges from 500 to 579, a 10% down payment is necessary, still allowing for qualification. It’s important to know that not all lenders offer FHA Mortgage Loans With No Overlays, so it’s worth finding a lender like Gustan Cho Associates, who doesn’t add extra requirements on top of the FHA guidelines.

Gustan Cho Associates Business Model Is Originating FHA Mortgage Loans With No Overlays

Gustan Cho Associates holds a mortgage company license in several states. It is known for offering government and conventional loans with no overlays. It is one of the few national mortgage companies that provides FHA Mortgage Loans With No Overlays. Over 75% of its clients are people who couldn’t qualify with other lenders because of those lenders’ extra requirements.

Typical mortgage lender overlays include higher minimum credit score requirements or the need for a certain number of credit tradelines.

Home Purchase With FHA Mortgage Loans With No Overlays

Homebuyers can purchase a home with a 3.5% down payment through FHA Mortgage Loans With No Overlays if they have a credit score of 580 or more. This benefits borrowers with lower credit scores or higher debt-to-income ratios. Even if you’ve had a bankruptcy, foreclosure, deed instead of foreclosure, or short sale in the past, you can still get a second chance to purchase a new home.

This is possible if you’ve rebuilt your credit and got approval through the automated underwriting system. An individual with a credit score of 500 or lower may still be eligible for an FHA loan.

Still, a 10% down payment is necessary instead of the normal 3.5%. An individual with a credit score of 500 or lower can still be eligible for an FHA loan. However, a 10% down payment would be mandatory rather than 3.5%. The good news is that you don’t need to pay off outstanding collections or charged-off accounts. Plus, the Federal Housing Administration allows you to use a gift from relatives or family members for your down payment.

Can You Have a Non-Occupant Co-Borrower on an FHA Loan?

Yes, you can have a non-occupant co-borrower on an FHA loan because FHA Mortgage Loans With No Overlays have more flexible guidelines than those from Fannie Mae or Freddie Mac. This means someone who doesn’t live in the house can still help you get the loan by adding their income and credit to your application.

It’s a common way for family members, like parents or siblings, to help each other. Here’s how it works: the non-occupant co-borrower is usually a close relative or someone you have a long-standing relationship with. They need to meet the FHA’s credit and income requirements like yours.

While they won’t live in the house, they will share the responsibility for paying the mortgage. Their financial strength can make it easier for you to qualify for FHA Mortgage Loans With No Overlays. Just keep in mind that you’ll both be responsible for the loan. If payments are missed, it will affect both your credit scores. But if everything goes smoothly, it can be a great way to get the home you want with a little help from someone you trust. Click here to find a lender with No Overlay for your loan

Typical Lender Overlays

Some lenders have overlays that require you to have at least 3 credit accounts that have been active for at least 24 months, while others only need 12 months.

According to DU FINDINGS, some lenders also require rental verification, even though it’s unnecessary. Some lenders may require borrowers to pay off all unpaid old collections before closing as part of their overlay requirements, even though others may approve mortgage loans with unpaid old collections.

The maximum back-end debt-to-income ratio for FHA loans is 56.9%. However, many lenders impose overlays that lower this limit, capping it at 50% or even lower. At Gustan Cho Associates, we offer FHA Mortgage Loans With No Overlays, meaning we stick to the basic FHA guidelines without adding these extra requirements.

FHA Mortgage Loans With No Overlays For Borrowers

Over 75% of our borrowers are folks who either got a last-minute mortgage loan denial or are stressing during their current mortgage process with another lender. The main reason for stress during the mortgage process or a mortgage denial by an underwriter is due to the fact that borrowers were not properly qualified.

Borrowers were issued pre-approval letters by a loan officer without the file being underwritten. All of our pre-approvals at Gustan Cho Associates are full credit loan approvals/loan commitment that has been fully underwritten and signed off by our mortgage underwriters. This is the reason why we close 100% of all our pre-approvals. There is no reason why any borrower who was issued a pre-approval letter should not just close but not close on time.

Why We Close Most Of Our Mortgage Loans

Gustan Cho Associates is a mortgage company licensed in multiple states with no overlays on government and conventional loans:

• We can help borrowers who cannot qualify at other lending companies
• As long as the borrower gets an approve/eligible from Fannie Mae and/or Freddie Mac Automated Underwriting System DU FINDINGS, Gustan Cho Associates will close the loan
• The automated findings are the borrower’s conditional loan approval
• Whatever the DU FINDINGS state is the conditions that are required for the clear to close (CTC)
•  Debt to income ratios requirements to get an approve/eligible per AUS FINDINGS  is 46.9% front end and 56.9% DTI back end
• No rental verification (If AUS does not request)
• Outstanding collections do not have to be paid
• Charge offs do not matter and do not have to be paid

The minimum credit score required is 580 to qualify for a 3.5% down payment FHA Mortgages.

Common Mortgage Overlays By Lenders

As mentioned earlier, most lenders have overlays which are mortgage guidelines that are above and beyond those of FHA Guidelines.

Here are typical common lender overlays:

• Many lenders will not go under 620 credit scores on FHA Loans
• This is called a lender overlay on credit scores

Debt To Income Ratio Overlays:

• The maximum debt to income ratio to get approve/eligible per AUS is 46.9% front end and 56.9% back end
• Many lenders will cap debt to income ratio at 45% to 50%

Many lenders will want borrowers to pay off outstanding collections and charge offs:

• This is not required by the lender with no overlays

Timeshare Foreclosure:

• Many lenders treat timeshare foreclosures as real estate foreclosure:
• However, under HUD Guidelines, timeshares are not real estate and are installment loans
• So there is no waiting period after a timeshare foreclosure

Overlays on credit disputes:

• Credit Disputes on non-medical collections and any non-medical collections with an aggregate outstanding balance under $1,000 are exempt from retraction
• Credit disputes with zero outstanding balance on non-medical collection accounts do not have to be removed
• Credit disputes that are older than 24 months from the date of last activity do not have to be removed
• If the aggregate total of all non-medical credit disputes total less than $1,000, those credit disputes from those creditors do not have to be removed

However, many lenders want borrowers to retract all credit disputes where retracting a credit dispute will lower credit scores. Removing credit scores can often plummet credit scores where the borrower may no longer qualify for a mortgage.

VA And FHA Loan During And After Chapter 13 Bankruptcy

VA and FHA have the same mortgage guidelines when it comes to qualifying for VA and/or FHA Loans During and After Chapter 13 Bankruptcy, most mortgage companies will have overlays on qualifying for VA and/or FHA Loans During and After Chapter 13 Bankruptcy.

However, under both VA and FHA Guidelines, borrowers can qualify for mortgage loans during Chapter 13 Bankruptcy Repayment Plan.

This holds true as long as they have been in it for at least 12 months. There is no waiting period to qualify for both VA Loans and FHA Loans after the Chapter 13 Bankruptcy discharged date. However, most lenders will have overlays on qualifying for VA and FHA Loans After Chapter 13 Bankruptcy discharge date of two years. Apply for a VA and FHA Loans during Chapter 13 Bankruptcy

Starting Loan Process On FHA Mortgage Loans With No Overlays FHA Lenders

Home Buyers who have been denied by other lenders or do not qualify due to that lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Gustan Cho Associates is a mortgage company licensed in multiple states with no overlays on government and conventional loans.

We have zero lender overlays on FHA, VA, USDA, and Conventional loans. We are also experts in non-QM loans. Gustan Cho Associates has over 50 wholesale lending partners. We have a national reputation for being a one-stop mortgage shop due to us having every non-QM and alternative financing mortgage program available in today’s market.

FHA Loans With Bad Credit 

There are various FHA loan programs that cater to first time home buyers and borrowers with lower credit scores.

• FHA mortgage loan programs have a generous debt to income limits
• Front end DTI is 46.9% and back end DTI is 56.9% to get an approve/eligible per AUS FINDINGS
• FHA mortgage loan programs also allow for up to a 6% seller’s concession towards closing costs
• All closing costs including prepaid escrows can be paid with sellers concessions and/or lender credit
• The buyer does not have to come up with any closing costs if they have enough in sellers concessions
• Sellers concessions can only be used for closing costs and no down payment
• FHA mortgage loan programs also allow for the buyers to have a non-occupant co-borrower to qualify if they have a higher debt to income ratio

FHA mortgage loan programs also allow the borrower’s down payment to be gifted if they do not have enough down payment on a home purchase.

FHA Mortgage Loan Programs For Buyers With Unpaid Collection & Charge Offs Accounts

FHA mortgage loan programs allow buyers with the open collection and charge off accounts to get mortgage loan approvals without having them to pay them off.

• There are restrictions with FHA mortgage loan programs such waiting period restrictions for prior bankruptcy and foreclosure
• There is a mandatory waiting period of 2 years from the date of the Chapter 7 bankruptcy discharge for a home buyer to qualify for an FHA loan
• There is a 3 year mandatory waiting period from the date of the recorded date of foreclosure, deed in lieu of foreclosure, and/or short sale for a home buyer to qualify for a mortgage loan
• However, just passing the waiting period does not guarantee a mortgage loan approval
• Lenders want to see re-established credit and no late payments after a bankruptcy and/or foreclosure
• Home Buyers can qualify for FHA mortgage loan programs with a credit score down to 500 FICO
• For those that have credit scores between 500 FICO and 579 FICO, the minimum down payment required is 10%
• For those who have credit scores between 580 FICO and 619 can qualify for a 3.5% down payment FHA mortgage loan:
  • But the debt to income ratio limits are set at 43% DTI

For credit scores of greater than 620 FICO, the debt to income ratio limits are 46.9% front end and 56.9% back end to get an approve/eligible per Automated Underwriting System.

How Mortgage Underwriters View Overdrafts

Overdrafts and bounced checks are a definite red flag if you intend on applying for FHA mortgage loan programs.

• FHA mortgage lenders do not want to see any bank overdrafts in the past 12 months by borrowers
• Even a $5.00 overdraft will raise a red flag
• Mortgage Loan Applicants with bank overdrafts should not submit those bank statements
• To avoid the underwriter not using the bank overdrafts borrowers need to go to the bank and get a 60-day printout of bank statements, signed, dated, and stamped by the bank teller
• There is no year to date overdraft fee history on bank statement printouts
• However, supplying 60 days actual bank statements, the year to date overdraft fees will show up on bank statements
• All that is required is 60 days of bank statements and the printouts should be sufficient
• Loan Officer should screen and scrutinize your bank statements before he submits it to underwriting and his job is to catch this prior to landing on the underwriter’s desk

FAQs: FHA Mortgage Loans With No Overlays FHA Lenders

• 1. What is a No Overlay Lender? A no-overlay lender, like Gustan Cho Associates, adheres to the basic rules set by major housing authorities such as the FHA, VA, USDA, Fannie Mae, and Freddie Mac without adding extra requirements. This approach makes it easier for people with lower credit scores or higher debt to qualify for loans since the lender doesn’t impose additional conditions beyond the basic guidelines.
• 2. Why Do Last-Minute Loan Denials Happen? Last-minute loan denials often occur because the loan officer needs to properly qualify the borrower before issuing a pre-approval letter. This can happen if the lender has additional requirements or overlays the borrower needs to don’t meet. At Gustan Cho Associates, proper qualification is ensured by running detailed credit reports and automated underwriting systems (AUS) to avoid such denials.
• 3. What Are FHA Lender Overlays? FHA lender overlays are additional requirements lenders impose on top of FHA’s minimum guidelines. For instance, while the FHA requires a minimum credit score 580 for a 3.5% down payment, many lenders might require a higher score. Gustan Cho Associates, however, does not have these overlays and adheres strictly to FHA’s minimum guidelines.
• 4. Can You Have a Non-Occupant Co-Borrower on an FHA Loan? Yes, FHA loans allow for non-occupant co-borrowers. This means someone who doesn’t live in the house, like a parent or sibling, can help you qualify for the loan by adding their income and credit to your application. This can be a great way to get the home you want with help from a trusted family member.
• 5. Why Are FHA Loans Popular? FHA loans are becoming more popular because they are accessible to first-time homebuyers and people with lower credit scores and higher debt-to-income ratios. With a credit score of 580 or above, borrowers can meet the requirement for a 3.5% down payment. Additionally, even individuals with credit scores as low as 500 can qualify by making a 10% down payment.
• 6. What Makes Gustan Cho Associates Unique? Gustan Cho Associates is unique because it operates with a no-overlay business model. It does not add extra requirements on top of the basic guidelines set by FHA, VA, USDA, and conventional loan programs. This approach allows it to help borrowers who might have been denied by other lenders due to stricter overlays.
• 7. How Does the FHA Loan Process Work at Gustan Cho Associates? The pre-approval process at Gustan Cho Associates involves thoroughly reviewing the borrower’s documents and obtaining approval through an automated underwriting system (AUS). This ensures that all issued pre-approvals are fully underwritten, reducing the risk of last-minute denials and ensuring a smoother closing process.
• 8. What Are Typical Lender Overlays? Typical overlays include higher minimum credit score requirements, lower debt-to-income ratio caps, and requirements to pay off old collections or charge-offs. Gustan Cho Associates does not impose these additional requirements but follows the basic guidelines.
• 9. What Are the Benefits of FHA Loans with No Overlays? FHA loans with no overlays allow borrowers with less-than-perfect credit and higher debt-to-income ratios to qualify more easily. These loans also permit non-occupant co-borrowers and flexible down payment options, making homeownership more accessible to a wider range.

For more information or to start your FHA loan process, contact Gustan Cho Associates at 800-900-8569 or email gcho@gustancho.com.

This blog about FHA Mortgage Loans With No Overlays FHA Lenders was updated on June 10th, 2024.