Mortgage Guidelines Versus Lender Overlays On Home Loans

This BLOG On Mortgage Guidelines Versus Lender Overlays On Home Loans Was PUBLISHED On May 12th, 2020

Mortgage Guidelines Versus Lender Overlays
Gustan Cho Associates

There is a big difference between mortgage guidelines versus lender overlays.

  • Not all lenders have the same lending requirements on FHA, VA, USDA, and Conventional Loans
  • All lenders need to follow minimum agency guidelines mandated by FHA, VA, USDA, Fannie Mae, Freddie Mac
  • However, each individual lender can have additional mortgage guidelines that is above and beyond those of agency guidelines
  • These higher credit/income requirements is called lender overlays
  • Just because one lender may deny a FHA Loan to a borrower does not mean the borrower cannot qualify with a different FHA Lender
  • Gustan Cho Associates Mortgage Group is a national mortgage company with no overlays on government and conventional loans
  • We just go off automated findings from Automated Underwriting System
  • DU Findings and/or LP Findings with no additional overlays

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

Mortgage Guidelines Versus Lender Overlays On Debt To Income Ratio

In the last few months here is a few ways I was able to help clients when other banks said NO.

  • One of my borrowers needed cash out to pay down debt to get her DTI down to 56.9 to do a FHA cash-out refinance with a 605 credit score
  • Under HUD Guidelines, the maximum debt to income allowed to get an approve/eligible per automated underwriting system is 46.9% front end and 56.9% back end
  • Most lenders will have lender overlays where they cap the back end debt to income ratio between 45% to 50%
  • Gustan Cho Associates is nationally recognized for having ZERO overlays

This was an easy loan and we did not just closed but closed it on time.

Mortgage Guidelines Versus Lender Overlays On Manufactured Homes

HUD, the parent of FHA, allows home buyers to purchase manufactured homes as long as the home is HUD approve and sits on a fixed concrete foundation.

  • However, most lenders have overlays where they do not do manufactured home loans
  • A few that do manufactured home financing require higher credit scores as part of their lender overlays
  • A family moving to Florida was trying to buy a Manufactured home
  • Everyone said we don’t do these
  • The manufactured home buyers found us on the internet that we are one of the largest lenders of manufactured homes

Gustan Cho Associates Mortgage Group will follow HUD Guidelines on manufactured homes and have no overlays.

Mortgage Guidelines Versus Lender Overlays On Chapter 13 Bankruptcy

Under HUD and VA Guidelines, borrowers can qualify for FHA and VA Loans one year into Chapter 13 Repayment Plan with Trustee Approval.

  • There is no waiting period after Chapter 13 Bankruptcy discharged date
  • However, most lenders will not qualify anyone in a Chapter 13 Bankruptcy Repayment Plan
  • Most lenders have lender overlays where they require a two year waiting period after Chapter 13 discharged date to qualify for VA and FHA Loans
  • Any borrower with less than 2 years seasoning after Chapter 13 discharged date and/or are in a current Chapter 13 Repayment Plan can qualify for VA and FHA Loans via manual underwriting

Gustan Cho Associates Mortgage Group has no overlays on FHA and VA Loans.

  • A lady who is currently in chapter 13 bankruptcy came to me because everyone told her 2 years from discharge
  • This is wrong
  • When dealing with Chapter 13 the rule is this
  • One year in and proof you are paying your last 12 months Bankruptcy payments on time
  • Also you need to prove last 12 months rent
  • If you meet these requirements I can get you a loan

W-2 Income Only Mortgage Loan Programs

What is W-2 Only mortgage programs

Gustan Cho Associates Mortgage Group offers W-2 Income Only Mortgages on FHA, VA, and Conventional Loans. No tax returns are required. Need to be W-2 wage earner and not have any Schedule E and/or Schedule C filings on income tax returns.

  • A man needed a w2 only because he just filed taxes and the IRS would not process returns in time for the closing in 3 weeks
  • We do true w2 only if you don’t own other rental properties or have a corporation

If your paycheck stubs have little or no commission our investors will not order transcripts from the IRS like 95% of lenders do.

Mortgage Guidelines Versus Lender Overlays On Student Loans

Large outstanding student loans is one of the biggest issues home buyers face when qualifying for mortgage. FHA and USDA require 1.0% of the outstanding student loan balance to be taken as a hypothetical debt payment. This holds true even though borrowers may have student loans deferred for longer than 12 months or may be on an Income Based Repayment Plan (IBR).

However, Gustan Cho Associates Mortgage Group allows the following on FHA and USDA Loans:

  • Contact student loan provider
  • Tell student loan customer service rep that you are applying for mortgage
  • Tell them that lender is requesting a fully amortized monthly payment over an extended term
  • The extended term is normally 25 years
  • This figure needs to be in writing

Guidelines On IBR Student Loans

Conventional Loans allows Income Based Repayment as long as it reports to all three credit bureaus. VA Loans allows deferred student loans that is deferred longer than 12 months to be exempt from debt to income ratio calculations. Student loans not on deferment, VA requires the mortgage underwriter to take 5% of the outstanding student loan balance and divide that figure by 12 months. That figure will be used as the hypothetical monthly debt used by underwriters to calculate debt to income ratios.

  • A woman came to me with 579 credit score and 900 a month student loan debt
  • She had a contract and was a 63 DTI
  • First I had her pay 700 of debt off raising her score to 605
  • Then I coached her on how do get the 900 a month student loan debt down to 512 by increasing the terms from 10 years to 25
  • After multiple mortgage loan denials by other lenders, Gustan Cho Associates was able to close this loan

Alternative Finance Programs

Gustan Cho Associates offers the following loan programs:

  • Bank statement loan programs for self employed borrowers with no tax returns required
  • Non-qm loans where there is no waiting period after housing event and/or bankruptcy
  • Condotel and Non-warrantable condominium financing
  • Investment property loans
  • Fix and flip loan programs
  • Blanket line of credit on investment properties

I have a gentlemen that has a business that makes money but his tax returns don’t show it.

  • He wanted to do a cash out refinance on an investment property
  • Everyone told him no
  • I have an investor that will not even ask for income
  • You only need to have the rental income cover the new mortgage payment
  • He is closing

Mortgage Guidelines Versus Lender Overlays On VA Loans

What are the guidelines for mortgage loans and lender overlays on VA loans?

The U.S. Department of Veterans Affairs (VA) has no minimum credit score requirements nor debt to income ratio caps. Most borrowers will be told by lenders that they have a minimum credit score requirement of 620 to 640. Most lenders will tell borrowers that VA has debt to income ratio caps of 45% to 50%. This minimum credit score requirement is not by VA but rather that lenders own overlays. Gustan Cho Associates has no overlays on VA Home Loans.

A veteran of the army went to 4 banks.  He has a 590 credit.  Everyone told him NO..  He has good income, good credit history just a low score.  No one thought of doing a manual underwrite. I did.  He will close.

Home buyers who need a national direct lender with no overlays on government and conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us fora  faster response. Or email us at We are available 7 days a week, evenings, weekends, and holidays.

  1. Richard Cordera

    Hello Mr. Cho:

    I came across your company while doing a search for non qualified mortgages. I have a few things that I would like to do.
    I would like to do a Cash-Out Refi-Primary Residence (jointly owned with X-wife)
    Home Value-$570-600k
    Once I cash out I will be looking for a Primary Residence in the range of 800-1.2M (within 3-6months)
    I would also like to look for an investment property in the near future (within 12 months)
    My current FICO is above 800
    I have 3 companies:
    1st company 15,000 per month deposits
    2nd company 100,000 per month deposits
    3rd company 250,000 per month deposits.
    Personal bank account roughly 15,000 per month deposits

    Do you think I am a candidate?

    Dr. Richard Cordera, M.D.

    1. Gustan Cho, NMLS 873293 says

      I will have my Associate Michelle McCue contact you in a few minutes and go over your questions and hopefully she can make this work. Looking forward to working with you and your family.

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