Lender Overlays On Government Mortgages Versus Agency Guidelines
Borrowers Denied By Lender Due To Lender Overlays Can Qualify For A Mortgage With Another Lender With No Lender Overlays
This Article Is About Lender Overlays On Government Mortgages Versus Agency Guidelines
Not all lenders have the same mortgage lending requirements on FHA, VA, USDA, and Conventional loans. However, mortgage companies can have higher lending requirements that are above and beyond the minimum agency lending guidelines by HUD, VA, USDA, Fannie Mae, and Freddie Mac. These higher lending requirements are called lender overlays. Not all mortgage companies have the same lending requirements. Just because a borrower may not qualify for a mortgage with one lender does not mean they cannot qualify for a mortgage with a different lender. Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at a mortgage lender due to their lender overlays. Gustan Cho Associates is one of the very few national mortgage companies with no lender overlays on government and conventional loans. In this article, we will discuss and cover agency mortgage guidelines versus lender overlays.
Government Mortgage Loans
Government Loans are home loans that guarantee lenders in the event borrowers default on their home loans. Government agencies do not originate nor fund loans. It is due to the government guarantee private lenders can originate and fund loans at great rates and low or no down payment. Lenders are able to offer low to no down payment on government-backed loans at low mortgage rates due to the government guarantee. If borrowers default on government loans, the government agency will insure part of the loss lenders take. In order for FHA, VA, USDA to insure the loan, lenders must meet and follow the minimum agency guidelines of the loan program.
Types Of Government Loans
There are three types of government loans:
- FHA Loans
- VA Loans
- USDA Loans
Government Loans are for owner occupant borrowers only. Borrowers cannot qualify for second home and/or investment property mortgages with government loans. Each government loan program has its own credit/income agency guidelines that lenders must meet.
Agency Guidelines Versus Lender Overlays On Government Mortgages
All mortgage lenders need to meet agency lending guidelines on government loans. However, lenders can have Lender Overlays On Government Mortgages. Lender Overlays On Government Mortgages are additional mortgage guidelines set by individual lenders.
Example Of Lender Overlays On Government Mortgages
Example of Lender Overlays On Government Mortgages are the following:
- Higher credit scores than agency guidelines
- Higher debt to income ratio requirements than government mortgage guidelines
- Agency guidelines do not require outstanding collections and charged off accounts to be paid
- However many mortgage companies have Lender Overlays On Government Mortgages on collections and charge off accounts
- Collection and Charge offs may be required to be paid off by the lenders as part of their overlays when agency guidelines do not require them to
- Common Lender Overlays On Government Mortgages by lenders is they may disqualify late payments in the past 12 months when borrowers got an AUS Approval with late payments in the past 12 months
Gustan Cho Associates Mortgage Group has no overlays on government and conventional loans. Gustan Cho Associates is a mortgage company licensed in multiple states with zero lender overlays. We just go off minimum agency guidelines and do not impose any other lending requirements above and beyond AUS Approval.
Case Scenarios Of Overlays Required By Lenders
Not all lenders who originate and fund FHA, VA, USDA Loans have the same mortgage guidelines.
- All lenders need to meet agency guidelines by FHA, VA, USDA
- But not all lenders have the same FHA, VA, USDA requirements
- For example, HUD, the parent of FHA, requires a 580 credit score for home buyers purchasing a home with 3.5% down payment
- These are the bare bones minimum FHA Guidelines
- However, most banks require 640 credit scores by borrowers
- Why are banks requiring 640 minimum credit score requirement when FHA requires 580 FICO?
The reason is that most banks have lender overlays on credit scores. It is perfectly legal for a bank and or lender to have higher credit/income standards (lender Overlays).
Lender Overlays On VA Loans
Another example is the U.S. Department of Veterans Affairs does not have a minimum credit score requirement or maximum debt to income ratio requirement. However, most lenders require a 620 to 640 credit score requirement. Most lenders cap debt to income ratio at 41% to 50% on VA Loans even though VA does not require maximum DTI caps. Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on VA Loans.
Finding Lender Licensed In Multiple States With No Overlays On Government And Conventional Loans
Our business model at Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. Over 75% of our borrowers are folks who could not qualify at other lenders due to their overlays. Borrowers who need to qualify for a mortgage with a mortgage company licensed in multiple states with no lender overlays, please contact us at 262-716-8151. For a faster response, you can text us at the same number at 262-716-8151. Or email us at [email protected] Gustan Cho Associates are also experts in non-QM and alternative loan programs on primary, second homes, and investment properties. We have dozens of relationships with non-QM wholesale lenders. Some of our popular non-QM loan programs include bank statement loans, asset-depletion loan programs, non-QM mortgages one day out of bankruptcy and foreclosure, fix and flip loans, mortgage programs for real estate investors, portfolio loan programs, and dozens of other alternative loan programs. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.