This BLOG On How Lender Overlays Prevent Mortgages For Home Buyers Was UPDATED And PUBLISHED On August 5th, 2019
How Lender Overlays Prevent Mortgages:
The Federal Reserve Board announced that almost a third of commercial and residential mortgage lenders loosen lending overlays in the 3rd Quarter. They expect lenders loosen lending overlays even more on the 4th Quarter.
- Lenders loosen lending overlays have sparked a sharp increase in mortgage applications nationwide
- The reason why one lender denies and another approves borrowers is due to How Lender Overlays Prevent Mortgages for home buyers
- Loosening overlays by lenders enable home buyers to purchase homes where otherwise they would not have qualified
- Mortgage rates are at an 18 month high and conventional mortgage rates have crossed the 4.5% mark last week
- There are no signs of a housing slowdown with higher rates
- With the combination of loosening of lenders loosen overlays with strong demand in the housing market, the housing market and housing prices are expected to be stronger than ever
- The strong economy under the Trump Presidency with good economic and international news day after day, home buying and refinance mortgage applications are expected to skyrocket for the remainder of this year into all of 2019
In this article, we will cover and discuss How Lender Overlays Prevent Mortgages For Home Buyers.
Lenders Realize How Lender Overlays Prevent Mortgages
More and more lenders are realizing How Lender Overlays Prevent Mortgages for home buyers.
- With higher mortgage rates, the refinance is drying up where much small mom and pop refinance shop are closing their doors and trying to concentrate on the purchase markets
- Most national lenders have loosened lending overlays are guidelines
What Are Lender Overlays Imposed By Mortgage Companies
Overlays are when a lender imposes additional mortgage lending requirements on top of the minimum FHA, VA, USDA, Freddie Mac, and Fannie Mae Guidelines.
- For example, to qualify for a 3.5% down payment FHA loan, HUD, the parent of FHA, requires a minimum credit score of 580
- However, a particular lender may set a lending overlay of a minimum credit score of 620 to 640
- Many lenders have overlays on credit scores and refuse to take any mortgage loan applicant with credit scores under 640
- Same with collection accounts
FHA does not require a mortgage loan applicant to pay off collection accounts with unsatisfied balances.
Why Lenders Impose Overlays On Collections And Charged-Off Accounts
However, a lender may require borrowers to pay off any collection accounts with balances:
- Lenders may require to bring it to a zero balance as part of their overlays
- This is because they might be afraid that the collection account will turn into a judgment
- Majority of lenders have overlays and are realizing How Lender Overlays Prevent Mortgages on purchase transactions
- However, more and more lenders are eliminating some of their mortgage overlays
- Gustan Cho Associates Mortgage Group have zero overlays on government and conventional loans
- Not too many mortgage lenders have zero mortgage lending overlays
- However, I expect lenders loosening their lending overlays more and more as time goes on because they now realize How Lender Overlays Prevent Mortgages
Credit Score Lending Overlays
As mentioned above, the minimum credit score needed to qualify for a 3.5% down payment home purchase mortgage loan is 580
- However, most banks and lenders have lending overlays on FHA loans that require minimum credit scores of 620 to 640
- Many 640 credit score lenders have loosened their lending overlays to 620 credit scores
- Others have lowered their minimum credit score requirements to 600
- If credit scores are lower than 600 and no lender will take you due to their lending overlays, please contact us at Gustan Cho Associates Mortgage Group
- We have zero overlays and just go off the DU FINDINGS or LP FINDINGS
Debt To Income Ratio Mortgage Overlays
Besides credit score lending overlays, another popular lending overlays set by lenders are the debt to income ratio overlays.
- For FHA loans, the maximum front end debt to income ratios allowed to be approve/eligible per DU FINDINGS is 46.9% and the maximum back end debt to income ratio allowed is 56.9% DTI
- However, the majority of lenders have set a cap on debt to income ratio overlays
- Most FHA lenders do not want to see a 45% debt to income ratio
- There are some that will allow up to 50% debt to income ratio for the back end
- However, more and more lenders are eliminating the debt to income ratio overlays and will just go off DU FINDING
- A few national lenders recently removed their debt to income ratio 50% maximum lending overlays and now will just go off DU FINDINGS
- Borrowers will find more and more lenders removing their debt to income ratio overlays on FHA LOANS
Collection Account Lending Overlays
FHA guidelines allow for a mortgage applicant to get a home loan with unsatisfied collection accounts without having them pay for it in full.
- However, many lenders, especially banks and credit unions, require that all collection accounts be paid in full as part of their own internal mortgage overlays
- Unfortunately, most lenders that have overlays on collection accounts still do not budge on this overlay
- The reason being is because they are afraid an unsatisfied collection account can turn into a judgment
- Borrowers who get denied by a lender due to unpaid collection accounts, please contact us at 800-900-8569 or text us for faster response
- We have no overlays on government and conventional loans and just go by is DU FINDINGS
Lenders With No Overlays
Borrowers who have gotten denied for a mortgage loan in the past couple of years from lender due to mortgage lending overlays may try them back. Many mortgage lenders have loosened their lending overlays. If you still do not qualify due to their overlays, please contact us at Gustan Cho Associates Mortgage Group at 1-800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com.
August 5, 2019 - 5 min read