This Article Is About Mortgage Loan Programs With No Overlays
The majority of mortgage lenders have their own overlays.
- There are not too many lenders who have Mortgage Loan Programs With No Overlays
- Lender overlays are additional mortgage guidelines imposed by lenders that are above and beyond the minimum agency guidelines of FHA, VA, USDA, Fannie Mae, and Freddie Mac
- Lenders can impose lender overlays on just about anything
- For example, HUD, the parent of FHA, requires a 580 credit score for a 3.5% down payment FHA loan
- However, many lenders will require a 620 or 640 credit score for borrowers even though HUD Agency Guidelines only require a 580 credit score
- There are so many lender overlays one lender may have but not another lender
Just because a borrower cannot qualify for a mortgage at one lender does not mean they cannot qualify for a mortgage at another lender.
Finding A Lender With No Lender Overlays
Gustan Cho Associates has no lender overlays on government and conventional loans. Each lender can have its own lender overlays. One lender may have lender overlays on credit scores but not debt to income ratios and a different lender can have overlays on DTI but not credit scores.
- There are a few lenders that claim they have zero overlays
- However, completely zero overlays are non-existent
- Here is a complete list I have of overlays that lenders who claim they have zero overlays still question
- I have had some success getting around things like maximum debt to income rations, DTI, and some of the rental verification stuff with supporting documentation such as letters of explanations
In this article, we will cover and discuss Mortgage Loan Programs With No Overlays & 30 Days Closings.
Mortgage Lender Overlays & Loan Programs With No Overlays
DU approval must reflect a maximum debt to income ratio, DTI, of 56.9% back end and 46.9% front end DTI for borrowers to get an approve/eligible per AUS on FHA loans:
- Exceptions to exceed the maximum debt to income ratio of 46.9% front end and 56.9% back end is not allowed
- The automated underwriting system (AUS) can approve maximum debt to income ratios of up to 46.9% front end and 56.9% back end on FHA loan
- Lenders with no lender overlay just go off the automated underwriting system findings and have no other overlays
- However, lenders with lender overlay may cap debt to income ratios on both front end and back end debt to income ratio
- Mortgage underwriters may request a letter of explanation on how they intend on paying their mortgage and monthly payments with no hardship
- Mortgage underwriters will analyze and be concerned with the borrower’s ability to repay their new housing payment
- Submission package must provide evidence of documented strengths to offset any of borrowers deficiencies (This helps me give me ammo to potentially get around any hurdles)
- Low payment shock is considered a great compensating factor
- For example, if the borrower’s new housing payment is the same as the rent payments they have been paying, there is a zero percent payment shock
- Any payment shock of 5% or under is considered a strong compensating factor
- This is because the borrower is used to paying a monthly housing payment and the new mortgage payment will be no payment shock
Verification of rent by providing 12 months of canceled checks or management VOR.
Manual Underwriting On FHA And VA Loans
FHA and VA loans are the only two mortgage loan programs that allow manual underwriting.
- In general, verification of rent is required on all manual underwriting
- However, at Gustan Cho Associates rental verification can be waived if the borrower is living rent-free with family members
- The owner of the property needs to sign a form that is provided by the lender stating the borrower is living rent-free temporarily to save funds to purchase a home
- Mortgage underwriters can downgrade an automated underwriting system approved borrower to a manual underwrite because they see many-layered risk
- This is underwriter discretion
Lenders with no lender overlays will not downgrade an automated underwriting system borrower to a manual underwrite.
Living Rent-Free With Family Members
If the borrower has lived with a family member rent-free or paid cash for rent, the borrower to provide a signed budget letter (I have had some success when documenting less than 12 months on this provided we have strong LOE’s budget letter, etc).
- Follow DU for acceptable credit documentation
- Collections/Chargeoffs less than 24 months and greater than $5000 will be reviewed on a case-by-case basis and the requirement for payoff is at the underwriter’s discretion with lenders who have overlays
- Non-occupant co-borrowers or co-signers are permitted as long as they are immediate family members; proof of relationship required
- Other blood relatives (aunts, uncles, cousins, etc) will be permitted and the occupant borrower DTI cannot exceed 50%
- Borrower income derived solely from commissions must have 3 months PITI reserves over and above the required investment
Borrowers that are currently in a payment arrangement with IRS have an established payment arrangement in place for 3 months and provide evidence of payments made.
Mortgage Loan Programs Change All The Time With Very Little Notice
There are many mortgage lenders that change their overlays mortgage loan program guidelines with little notice.
- I know of lenders who stated that they had no overlays and as long as the borrower had an approved eligible from Fannie Mae’s Automated Underwriting System, the deal will get done
- During the underwriting process, the mortgage application got suspended because all of a sudden the mortgage lender implemented rental verification overlays even though it is not conditioned on the Automated Underwriting System Findings
- There are times when borrowers can not provide rental verification because the home they were currently living in is under foreclosure
- The home can be under the wife’s name and not the husband
Ultimately, the underwriting department can approve the mortgage loan without requiring rental verification or give a pass to their lender overlays.
Clear To Close
If the mortgage loan originator offers special mortgage loan programs with no overlays where it benefits such as not having to pay off open collections, 580 credit scores, high debt to income ratios, I strongly recommend that borrowers aggressively work in getting a clear to close and not procrastinate in submitting required documents. Gustan Cho Associates has mortgage loan programs with no overlays. We just go off AUS Findings. Gustan Cho Associates are experts in originating and funding non-QM loans such as bank statement loans, asset-depletion mortgages, one-day out of bankruptcy and foreclosure, non-QM jumbo loans with lower credit scores, and a variety of loans for real estate investors.