HUD Guidelines Versus FHA Lender Overlays On FHA Loans

HUD Guidelines Versus FHA Lender Overlays On FHA Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article is About The HUD Guidelines Versus FHA Lender Overlays On FHA Loans

Many homebuyers, especially first-time home buyers, are often under the belief that all Lenders have the same FHA Mortgage Guidelines. Just because a borrower may not qualify with one lender does not mean that they do not qualify for an FHA Loan. All lenders with overlays have different mortgage guidelines on FHA Loans. This is often not the case. There is a difference between HUD Guidelines Versus FHA Lender Overlays. Under HUD Guidelines on credit scores, HUD requires a 580 credit score for 3.5% down payment FHA Loans. However, most banks require 640 credit scores while other lenders may require 620 credit scores. The higher credit score requirements are called FHA Lender Overlays On Credit Scores. There are many overlays a lender can impose. The good news is that are lenders like Gustan Cho Associates that have no overlays on FHA Loans. Gustan Cho Associates only goes off HUD Guidelines and has ZERO OVERLAYS on government and conventional loans.

In this article, we will discuss and cover HUD Guidelines Versus FHA Lender Overlays On FHA Loans.

The Federal Housing Administration And FHA Loans

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The United States Housing and Urban Development, also known as HUD to most, is the parent government agency of the Federal Housing Administration  (FHA). FHA is not a lender. FHA is a government agency whose role is to promote homeownership in the U.S. by insuring private lenders on FHA Loans. HUD insures FHA Loans that banks and private lenders originate and fund that goes into default and foreclosure. HUD will insure the loss on lenders that followed HUD Guidelines when originating and funding loans. Due to this guarantee, banks and lenders are able to offer FHA-insured home loans to hard-working American Families with only a 3.5% down payment and with less than perfect credit.

More On HUD Guidelines Versus FHA Lender Overlays

HUD Guidelines Versus FHA Lender Overlays: There are two separate types of lending guidelines

  1. HUD Guidelines
  2. Lender Overlays

HUD Guidelines Versus FHA Lender Overlays:

  • HUD Guidelines are FHA Guidelines that all lenders need to follow in order for FHA Loans they originate to be insurable
  • Overlays are mortgage guidelines that are above and beyond those of FHA Guidelines that lenders can impose
  • All lenders need to follow HUD Guidelines

However, any lender can have higher mortgage lending requirements than those of FHA Guidelines:

  • FHA loans are insured by HUD and enable lenders to provide FHA loans
  • FHA loans make homeownership possible to many Americans by only requiring a 3.5% down payment on a home purchase
  • FHA loan programs also make homeownership possible to home buyers with less than perfect credit

HUD makes it possible for those who have had an economic event in the past such as bankruptcy and/or foreclosure become homeowners as long as they have passed the mandatory waiting requirement.

HUD Guidelines Versus FHA Lender Overlays On FHA Loans

The Federal Housing Administration also offers the following:

  • FHA streamline refinance mortgage loans
  • Refinance mortgage loans
  • Cash-out refinance mortgage loans
  • Home purchase loans to home buyers who are interested in 2 to 4 unit owner-occupied multi-unit properties
  • FHA 203k Loans
  • Reverse Mortgages

Owner Occupancy

Government loans are for owner-occupant primary home mortgages only. There are three government loan programs. FHA, VA, USDA loans. FHA loans are only available to owner-occupied properties only. Second-home and investment home financing do not qualify for FHA-insured mortgage loans. Homeowners need to live on a home that is mortgaged with an FHA loan for at least 12 months. After 12 months, they can still keep the FHA loan and rent the property out. One to four-unit residentially zoned home is available for a 3.5% down payment FHA loan.

FHA Mortgage Lenders

FHA Mortgage Lenders

The Federal Housing Administration is not a mortgage lender. It is a government agency under the United States Housing and Urban Development that insures HUD lenders on all of the FHA loans they originate. FHA loans are originated, processed, underwritten, and funded by mortgage lenders such as HUD-approved banks, mortgage bankers, correspondent lenders that need to abide by HUD guidelines in originating FHA loans in order to be insurable by HUD. Licensed mortgage brokers need to be licensed in the states they want to originate loans by the NMLS and be hooked up with wholesale lenders who are HUD-approved.

Mortgage Lender Overlays By FHA Loans

Each FHA mortgage lender has its own mortgage lender overlays. Overlays are additional guidelines the mortgage lender has that surpass the minimum HUD agency mortgage guidelines set by the Federal Housing Administration. Homebuyers who have minimal credit scores and prior credit issues can qualify for FHA Loans. All borrowers must minimum standards of FHA guidelines.

Minimum FHA Mortgage Guidelines

Minimum FHA guidelines are the following:

  • 500 credit scores to qualify
  • For any borrower between 500 and 579 FICO scores, a 10% down payment is mandatory
  • 580 to 619 credit scores, 3.5% down payment is required and maximum debt to income ratios cannot exceed 43% back end debt to income ratios
  • 620 credit scores and higher, 3.5% down payment and 56.9% debt to income ratios allowed as long as approve/eligible per DU FINDINGS

2 year waiting period after a bankruptcy discharge:

  • 3 year waiting period after foreclosure, deed in lieu of foreclosure, short sale

Foreclosure and deed in lieu of foreclosure waiting period start from the recorded date of the sheriff’s sale or the date the deed was transferred out of the homeowner’s name into the mortgage lender’s name.

FHA Guidelines On Collections And Derogatory Credit

Open collections are allowed. Restrictions with judgments and tax liens. Homebuyers with judgment and/or tax liens can qualify. But they need a payment agreement with the judgment creditor or the IRS for tax liens and proof of a minimum of three months payment. The proof is provided by providing the mortgage underwriter with three months’ canceled checks. Rental verification may be required by providing 12 months of canceled checks to the landlord. This holds true unless the renter is renting from a property management company. Then a letter from the property management company is sufficient. Re-established credit and no late payments after bankruptcy and/or foreclosure may be required to get an approve/eligible via Fannie Mae’s Automated Underwriting System

Many FHA mortgage lenders may impose their own lender overlays such as a minimum of 3 to 4 credit tradelines for a minimum of 12 to 24 months. Needs to be owner-occupied properties. One to Four units. Gifts funds for a down payment are allowed. The donor of the down payment needs to be a relative and/or close friend. There cannot be any repayment agreement are allowed.

FHA Condominium Loans: HUD Approved Condos Only

It is getting more and more difficult to purchase a condominium with FHA Loans. However, condo buyers can buy condominiums with FHA loans but the condominium complex needs to be HUD Approved. More and more condo complex are not renewing their HUD Approval because of the costs involved.

To see if the particular condo is FHA Loans approved Visit

HUD Guidelines Versus FHA Lender Overlays: Qualifying With Lender With No Overlays On FHA Loans

Over 75% of our borrowers at Gustan Cho Associates are folks who either got a last-minute mortgage loan denial or are stressing over their mortgage process with another lender. The only reason for a mortgage denial or stress during the mortgage process is because the loan officer did not properly qualify the borrower. Most mortgage lenders have overlays. Gustan Cho Associates is one of the few lenders nationally with zero overlays on government and conventional loans.

Typical Overlays By Mortgage Lenders

Here are HUD Guidelines Versus FHA Lender Overlays & Typical Common Overlays:

  • Overlays on credit scores
  • Overlays on debt to income ratios
  • Overlays on collections and charge offs
  • Overlays on FHA Loans During And After Chapter 13 Bankruptcy With No Waiting Period

Home Buyers who need to qualify with a direct lender with no lender overlays can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at We are available 7 days a week, evenings, weekends, and holidays.

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