Overlays In Underwriting On Government And Conventional Loans

This BLOG On Overlays In Underwriting On Government And Conventional Loans

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

Mortgage Guidelines were implemented:

  • Most lenders had implemented their own overlays
  • No Overlays In Underwriting is offered by only a few lenders
  • There was a time when borrowers 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:

  • This is 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 mortgage loans

In this article, we will discuss and cover Overlays In Underwriting On Government And Conventional 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 Agency Guidelines does not mean that they will qualify with all lenders
  • If the loan applicant does not fit their mortgage 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 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 a minimum of 620 to 640 FICO score requirements although HUD requires a 580 FICO

HUD allows borrowers under 580 FICO to qualify for FHA Loans but with a 10% down payment.

Mortgage Denials By Banks Due To Overlays In Underwriting

Why banks are refusing a mortgage

There is hope for mortgage applicants who get denied a mortgage loan by banks.

  • Most banks and mortgage lenders have overlays in underwriting
  • Overlays are additional mortgage requirements and standards imposed by the individual lenders that are beyond those of the minimum mortgage guidelines
  • Lenders need to make sure their borrowers meet the minimum agency guidelines on government and conventional loans
  • However, lenders can have lender overlays

Most lenders have lender overlays. Gustan Cho Associates is one of the few mortgage companies with no lender overlays on government and conventional loans.

Common Overlays In Underwriting Imposed By Lenders

Here are examples of overlays in underwriting:

  • HUD requires a minimum of 580 FICO credit score to qualify for FHA Loans with a 3.5% down payment
  • Lenders may have overlays in underwriting where they may require a 620 credit score
  • This holds true even though HUD only requires 580

HUD does not require that borrowers pay off outstanding collections and charge off accounts to qualify for FHA Loans.

Agency Guidelines Versus Lender Overlays

What are the agency's guidelines and lenders' overlays?

Banks and other mortgage companies may require that borrowers pay off outstanding collections and charge offs to qualify for FHA Loans:

  • This holds true 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
  • HUD 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
  • However, many banks and lenders will have a debt to income ratio overlays that cap DTI at 45% to 50% due to their overlays in underwriting
  • 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 Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] Gustan Cho Associates is a mortgage company licensed in multiple states with no overlays on government and conventional loans. The team at Gustan Cho Associates are experts in originating mortgages with no overlays in underwriting and are available 7 days a week, evenings, weekends, and holidays.

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