Overlays In Underwriting

This BLOG On Overlays In Underwriting Was Updated On May 16, 2017

The mortgage industry went through a major overhaul after the subprime crisis.

  • Mortgage Guidelines were implemented and most lenders had implemented their own overlays.
  • No Overlays In Underwriting is offered by only a few mortgage lenders.
  • There was a time when a mortgage loan borrower use to be able to get any types of loans at their neighborhood bank. 
  • They used to be able to get credit cards, car loans, bridge loans, and mortgage loans. 
  • Most small community banks either went out of business due to the financial disaster of 2008 or have been bought out by larger giant banks like JP Morgan Chase, Bank of America, Citibank, or Wells Fargo. 
  • Most American consumers are now noticing that their banks do not have any sense of loyalty even though they park their money via checking and savings account. 
  • Although many banks have residential mortgage departments, the bank’s customers more often than not get denied for mortgage loans.

Qualifying For Mortgage With Lenders That Have Overlays In Underwriting

Most banks and mortgage companies have overlays in underwriting.

  •  Just because mortgage applicants meet FHA, VA, USDA, Fannie Mae, and/or Freddie Mac Mortgage Guidelines does not mean that they will qualify with all lenders.
  • If the mortgage loan applicant does not fit their mortgage loan underwriting guidelines of a particular lender, they will not qualify with that lender.
  • Just because a borrower does not qualify with one lender does not mean that they will not qualify with a different lender.
  • For example, most banks and mortgage companies will not lend to borrowers who has a credit score under 640 FICO.  
  • However, many lenders like myself will go down to 580 FICO on 3.5% down payment FHA Loans.
  • Many lenders have overlays on credit scores with minimum of 620 to 640 FICO score requirements although FHA requires a 580 FICO.
  •  FHA allows borrowers with under 580 FICO to qualify for FHA Loans but with 10% down payment.

Mortgage Denials By Banks Due To Overlays In Underwriting

There is hope for mortgage applicants who get denied for a mortgage loan by a banks. Most banks and mortgage lenders have overlays in underwriting. Overlays are additional mortgage requirements and standards imposed by the individual mortgage lenders that is beyond those of the minimum mortgage guidelines.

Here are examples of overlays in underwriting:

  • FHA requires a minimum of 580 FICO credit score to qualify for FHA Loans with 3.5% down payment.
  • Banks or mortgage lenders may have overlays in underwriting where they may require a 620 FICO credit score even though FHA only requires 580.
  • FHA does not require that borrowers pay off outstanding collections and charge off accounts to qualify for FHA Loans.
  • Banks and other mortgage companies may require that borrowers pay off outstanding collections and charge offs to qualify for FHA Loans even though HUD, the parent of FHA, does not require it. This is called overlays in underwriting.
  • Other typical overlays are debt to income ratio overlays.
  • FHA allows up to a front end DTI of 46.9% and back end DTI of 56.9% to get an approve/eligible per Automated Underwriting System findings for borrowers with at least a 620 FICO credit scores.
  • However, many banks and lenders will have debt to income ratio overlays that cap DTI at 45% to 50%.
  • Borrowers who do not qualify with one lender does not mean that they cannot qualify with a different lender.

Borrowers who have bad credit, lower credit scores, higher debt to income ratios, and late payments after bankruptcy and/or foreclosure can contact The Gustan Cho Team at 800-900-8569 or text Gustan on his cell at 262-716-8151 or email us at gcho@gustancho.com. We are experts in originating mortgages with no overlays in underwriting and are available 7 days a week, evenings, weekends, and holidays.

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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