Preparing For An FHA Loan With A Lender With No Overlays

This Article Is About Preparing For An FHA Loan With A Lender With No Overlays

The COVID-19 coronavirus pandemic has sent many families out of major cities.  Thousands of Americans fear living in a major city, accompanied by historically low-interest rates, has sparked a homebuying uptick. Many families may have less than perfect credit but still would like to move.

In this blog, we will detail how to prepare for an FHA mortgage if your credit is less than ideal. We will give some points and tricks to help qualify with Gustan Cho Associates. We do not have LENDER OVERLAYS on any of our mortgage products. About 75% of our clients have been turned down by the current mortgage company but are still able to qualify. Let us discuss the FHA loan process in more detail.

Preparing For An FHA Loan With A Lender With No Overlays: Understanding What Lender Overlays Are

 First, it is important to understand what a lender overlay means. A lender overlay is an additional guideline added by a lender or bank to increase qualification criteria. This protects the lender against any additional risk they may not want to take on.

See the screenshot below directly from an FHA scorecard. This gives the lender the individual ability to increase qualifications

 

Since Gustan Cho Associates have investors without additional lender overlays, we are able to lend based on HUD guidelines only. We just go by the minimum agency mortgage guidelines on government and conventional loans. Nothing additional. Over 75% of our borrowers are folks who could not qualify at other lenders due to lender overlays. The no lender overlays business model helps us serve more individuals and families across the nation. So even if you have been turned down in the past, we encourage you to reach out to us today. There is a good chance you’re running into a lender overlay. Some pointers to prepare for the application process to obtain an FHA mortgage will be listed in the following paragraphs.

The Importance Of Credit Scores When Qualifying For An FHA Loan

The borrower’s credit score is a key factor when applying for a mortgage. Common sense would tell you, the higher the credit score, the lower the interest rate. Besides a lower interest rate, the credit score is important for other reasons as well. Your credit history can make or break your qualifications.

If you are an individual with a rocky credit history and numerous miss payments or collections, this can hinder your qualifications. The general rule of thumb is, we need to be on time with all payments for at least 12 months prior to applying. Sometimes longer depending on the automated underwriting system or AUS (see our AUS BLOG for more information). If your file requires a manual underwrite, it is important that you are on time with all your installment loans for the past 12 months and only 30 days late twice within the past 13 months to 24 months.

FHA mortgages allow for an occasional late payment on a credit card. It is important to square up any collections with the past 12 months with a pay to delete. A non-medical collection in the past 12 months can be a hard stop on your qualifications. During your one on one mortgage consultation, Mike will go over your credit history in detail. If there are excessive late payments, your licensed loan officer will let you know the soonest you can qualify.

Preparing For An FHA Loan With A Lender With No Overlays: Down Payment Requirements

What are the down payment requirements

Down payment requirements. The down payment is another key pillar to your mortgage qualifications. FHA mortgages require a 3.5% down payment with credit scores of 580 or above. If your credit score is between 500 and 579, you will need a minimum of a 10% down payment to qualify for an FHA loan. Most individuals do not know that FHA credit score requirements go all the way down to 500. This is because most lenders have overlays where they require a minimum score of 620 or even 640. Some large banks have even higher. Credit score thresholds with the COVID-19 coronavirus outbreak adding additional overlays.

As stated above, we do not have lender overlays so we can help you with credit scores all the way down to 500.

Preparing For An FHA Loan With A Lender With No Overlays: Understanding Closing Costs

Closing costs. Closing costs are part of the mortgage process. Nobody enjoys paying them, but they are required. Each state has slightly different closing cost criteria. Some counties have extra transfer taxes. This information is not specific to your area. You should expect to pay closing costs such as lender origination, title fees, escrows, prepaid, state and local taxes, homeowner association verifications, and even flood zone certifications. You could be buying a high-rise in a major city and still must pay a flood zone certification.

Closing costs are simply part of the mortgage process. For more information on specific closing costs in your area, please call Mike Gracz and 630-659-7644. You may also email [email protected] Mike will pair you with a licensed loan officer who can properly quote closing costs in your state.

Mortgage Agency Guidelines Versus Lender Overlays On Reserve Requirements

What are the mortgage agency guidelines and the imposition of provisions on provisions by lenders

RESERVE requirements:

  • Reserve requirements are not always required but usually required with lower credit score borrowers
  • Reserves are defined as liquid capital accessible by a borrower after paying down payment and closing costs
  • These are additional funds in your bank or retirement account
  • The reason these are required is to prepare for the worst
  • Typically, you will need a minimum of 1 to 3 months of reserves
  • One month of reserves is equivalent to one month of total mortgage payment including principal, interest, taxes, insurance, and any homeowner’s association dues (PITIA)
  • If your total mortgage payment is $2000, then one month of reserves is equivalent to $2000, three months of reserves are equivalent to $6000

Many borrowers utilize their retirement plans as their required reserve requirement. 

Starting The Home Mortgage Process At Gustan Cho Associates

Applying for an FHA loan with Gustan Cho Associates is very simple. First, you will call Mike Gracz on 630-659-7644. Mike will go over your future housing plans in detail. It is important to understand your qualifications and budget. You do not want to stretch your budget further than your capabilities. If there is one thing to COVID-19 coronavirus outbreak taught us, it is we need to be prepared for the unexpected.

Even if you have been turned down for a mortgage in the past it is important to get a second opinion. You very well could be dealing with a lender overlay. Gustan Cho Associates are available seven days a week. Give us a call and get a personalized mortgage quote! 

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