Mortgage Lender Overlays On FHA And VA Loans

This BLOG On Mortgage Lender Overlays On FHA And VA Loans Was UPDATED On November 16th, 2017

Mortgage Lender Overlays are mortgage lending guidelines that is above and beyond those mandated by mortgage loan programs.

There are two types of mortgage lending guidelines:

  1. Mortgage Loan Program Guidelines
  2. Mortgage Lender Overlays

All banks and mortgage companies need to follow mortgage loan program guidelines. However, every bank and/or mortgage lender can have their own mortgage lender overlays.

Here are the mortgage loan programs:

  • FHA Loans
  • VA Loans
  • USDA Loans
  • Fannie Mae
  • Freddie Mac

The above mortgage loan programs have their own minimum mortgage guidelines. However, lenders can have mortgage guidelines that is above and beyond of those of the minimum loan program guidelines called mortgage lender overlays.

  • Mandatory guidelines include  the following:
    • Minimum credit scores
    • Waiting periods after the following:
      • bankruptcy
      • Foreclosures
      • Short sales
      • Deed In Lieu Of Foreclosure
  • Debt to income ratio caps
  • Down payment requirements
  • Collection account guidelines
  • Judgment guidelines
  • Other mortgage loan guidelines

Approve/Eligible Per AUS Versus Mortgage Overlays

Just because mortgage borrowers get a Fannie Mae Automated Underwriting System approval does not mean a particular lender will approve a mortgage loan application.

  • Many mortgage lenders will implement their own set of additional mortgage underwriting standards that will surpass the bare minimum FHA and Fannie Mae Guidelines
  • This is called mortgage lender overlays
  • For example, a mortgage loan borrower can have an approved/eligible per DU Findings which has been automated underwritten by Fannie Mae’s Automated Underwriting System
  • Say that the mortgage loan applicant has a mid FICO score of 620 and a debt to income ratio of 53%
  • The particular mortgage company might have mortgage lender overlays where the mortgage loan borrower might not qualify because their mortgage lender overlays
  • That lender can be mortgage lender overlays on credit scores and can require a higher score like a 640 credit score
  • They might cap their debt to income ratios to 45% on credit scores under 680 FICO even though HUD’s Credit Score Guidelines are 580 

Typical Mortgage Lender Overlays On FHA And VA Loans

Before reading any further on overlays, there are mortgage companies with no Mortgage Lender Overlays On FHA And VA Loans  that I will cover in a later paragraph.

  • The Gustan Cho Team at USA Mortgage has no Mortgage Lender Overlays On FHA And VA Loans
  • We are a direct lender licensed in multiple states with zero Mortgage Lender Overlays on FHA and VA Loans as well as USDA and Conventional Loans

However, I will cover mortgage lender overlays and what to do in the event if you choose a mortgage banker with mortgage lender overlays.

Typical Mortgage Lender Overlays On FHA And VA Loans are the following:

  • Credit Scores On FHA Loans:  Fannie Mae Automated Underwriting System might approve FHA Borrowers with a 580 credit score on a FHA Loan with 3.5% down payment
  • However, the mortgage company may require a  minimum of 640 FICO even though FHA Guidelines on Credit Scores only requires a 580 credit score
  • Debt to Income Ratios:  Fannie Mae Automated Underwriting System might approve a mortgage loan applicant with a 55% back end debt to income ratio
  • However, a mortgage company may have their own mortgage lender overlays where they cap the debt to income ratios at 45% even though FHA Guidelines on DTI is capped at 46.9% front end and 56.9% back end DTI to get an approve/eligible per AUS
  • Verification of rent:  Fannie Mae Automated Underwriting System might approve a mortgage borrower per DU Findings without conditioning verification of rent
  • However, the mortgage company might have their own mortgage lender overlays requiring verification of rent
  • Paying off past charge offs and collection accounts:  FHA and VA guidelines do not require old collection accounts to be paid off to qualify for VA and/or FHA Loans
  • However, the mortgage lender might have their own mortgage lender overlays requiring that borrowers pay off old collection accounts with balances even though the Automated Underwriting System does not require borrowers to
  • Credit tradelines:  Fannie Mae Automated Underwriting System might approve per DU Findings without any credit tradelines
  • However, the mortgage lender might have their own internal mortgage lender overlays requiring 3 or more credit tradelines seasoned for 12 to 24 months
  • Some mortgage lender overlays require 24 months of seasoning of credit tradelines with no late payments as part of their overlays
  • VA Loans do not require any minimum credit score requirements
  • However, to get an approve/eligible per AUS FINDINGS, most veteran borrowers will need a 580 credit score
  • VA does not have any debt to income ratio requirements

Lenders Overlays During And After Chapter 13 Bankruptcy

Most lenders have overlays on FHA and VA Loans during and after Chapter 13 Bankruptcy.

  • However, under both FHA and VA Guidelines, mortgage borrowers can qualify for FHA and VA Loans one year into their Chapter 13 Bankruptcy Repayment Plan with Trustee Approval.
  • There is no waiting period to qualify for FHA and VA Loans after Chapter 13 Bankruptcy discharged date.
  • The Gustan Cho Team at USA Mortgage has no mortgage lender overlays on FHA and VA Loans during and after a Chapter 13 Bankruptcy discharged date.

Qualifying With A Lender With No Mortgage Lender Overlays

Mortgage loan borrowers with higher debt to income ratios or less than perfect credit needing to qualify for a mortgage loan with a lender with no lender overlays, please contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are available 7 days a week, evenings, weekends, and holidays. The good news is that we help our borrowers get mortgage loan approval per DU Findings with no mortgage lender overlays. Mortgage borrowers with credit scores under 600 FICO and get an approved/ eligible and can meet the conditions stated on AUS, they will close on their FHA or VA Loans.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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