Mortgage Guidelines Versus Investor Overlays By Lenders


Mortgage Guidelines Versus Investor Overlays By Lenders

This BLOG On Mortgage Guidelines Versus Investor Overlays By Lenders Was UPDATED On August 8th, 2018

Mortgage Guidelines Versus Investor Overlays: Not all lenders have the same mortgage guidelines on government and conforming loans.

  • All lenders need to follow agency guidelines by FHA, VA, USDA, Fannie Mae, and/or Freddie Mac
  • However, lenders can have their own mortgage guidelines that are above and beyond the minimum agency government and/or conforming guidelines called investor overlays
  • For example, HUD, the parent of FHA, sets the minimum agency guidelines for FHA Loans
  • Minimum credit scores for FHA Loans is 580
  • However, lenders can require 620 to 640 credit scores
  • This is an investor overlays on credit scores
  • There are differences in Mortgage Guidelines Versus Investor Overlays
  • Gustan Cho Associates Mortgage Group has zero overlays on government and conventional loans
  • We just go off automated underwriting system approval findings with no other investor overlays

Mortgage Guidelines Versus Investor Overlays Defined

There are two types of mortgage guidelines.

  • The first and foremost is the federal lending guidelines is from government loans such as FHA Loans, VA Loans, USDA Loans
  • Fannie Mae and Freddie Mac is in charge of implementing mortgage guidelines for conventional loans
  • The second type of guidelines are called mortgage lender overlays
  • Investor overlays are guidelines implemented by each individual lenders that are above the minimum federal lending guidelines mandated by FHA, VA, USDA, Fannie Mae, and Freddie Mac
  • Most lenders do have investor overlays
  • However, there are a few select lenders like myself who do not have overlays
  • We will strictly go off the federal minimum mortgage guidelines
  • On this mortgage blog article post, we will mainly cover on cases where borrowers are issued mortgage loan denials due to not meeting mortgage lending guidelines

How Do Mortgage Applicants Get Pre-Approved?

Borrowers thinking of buying a home and want to start shopping for a house to purchase will need a pre-approval letter from a lender.

  • Lenders may or may not have investor overlays
  • Mortgage Guidelines Versus Investor Overlays are quite different
  • Investor overlays are additional credit requirements on top of the federal minimum lending requirements
  • Borrowers prior credit issues with lower credit scores, or have higher debt to income ratios should consult with a lender like myself who just go off the automated findings and have no overlays
  • An example of overlays are credit score and debt to income ratio overlays
  • For example, here is a case scenario:
    • FHA only requires a 580 credit score for a 3.5% down payment home purchase FHA Loan
    • A large percentage of our borrowers have credit scores of under 600
    • However, most lenders do not want to approve borrowers with credit scores of under 620
    • This is called an investor overlay on credit scores
  • Another example of lender overlays is debt to income ratio lender overlays
    • HUD requires a maximum back end debt to income ratio overlays of 56.9% and 46.9% front end to get an approve/eligible per automated underwriting system approval
  • However, most lenders will have a cap on debt to income ratios of no greater than 45% to 50%
  • This is called a debt to income ratio overlay
  • There are many overlays to list
  • It is up to the individual lender on what types of overlays they will require on their mortgage loan applicants

What If You Are Told You Do Not Qualify For Home Loan?

If borrowers are told they do not qualify for a home loan, find out from mortgage loan originator why you do not qualify?

  • Is it because you do not meet federal lending mortgage guidelines?
  • Or is it due to the particular lender overlays?
  • Chances are that you do not meet that particular overlays
  • As long as borrowers meet the minimum federal lending guidelines, lenders like myself will have no issues approving mortgage loan

Borrowers told they do not qualify for a home loan due to the particular overlays, please contact Gustan Cho Associates at 262-716-8151. We have overlays and will just go off the findings of the Automated Underwriting System. As long as borrowers meet the conditions of the automated approval, we should have no problem in closing your home loan

Mortgage Companies Who Only Go By Mortgage Guidelines Versus Investor Overlays

As mentioned earlier, borrowers with prior bad credit with open collection accounts, judgments, tax liens, prior bankruptcy, prior foreclosure, prior deed in lieu of foreclosure, lower credit scores, or high debt to income ratios, their best bet is to go with a lender with no overlays. Lenders with no overlays will just follow the minimum federal lending guidelines. All mortgage loan applications will go through either Fannie Mae and/or Freddie Mac Automated Underwriting System. The automated system will render an approve/eligible, refer/eligible, or refer/ineligible. An approve/eligible is what borrowers want. As long as borrowers can provide all the conditions that has been listed on the automated findings, lenders with no lender overlays should be able to close the mortgage with no issue.

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