Types Of Mortgage Lenders And Lender Overlays For Home Loans
This BLOG On Types Of Mortgage Lenders And Lender Overlays For Home Loans Was UPDATED And PUBLISHED On October 15th, 2019
There are different types of mortgage lenders.
- Most people are not familiar with the mortgage process
- Most folks only need to consult lenders no more than half a dozen times in their lifetime
- This holds true unless they are professional real estate investors
Not all lenders have the same mortgage guidelines.
Government Versus Conventional Loans
Government Loans are owner occupant home loans guaranteed by the federal government such as the following:
- FHA Loans guaranteed by the U.S. Department of Housing and Urban Development (HUD)
- VA Loans guaranteed by the U.S. Department of Veteran Affairs
- USDA Loans guaranteed by U.S. Department of Agriculture Rural Development
What Are Government Loans
Government Loans are owner occupant home loans originated and funded by private mortgage lenders and banks.
- The governmental agency insures the individual banks and/or lenders losses incurred by lenders in the event if the borrower defaults on their government loans
- However, in order for the government to guarantee the home loans in default, the lender needs to follow the government mortgage guidelines at the time of originating the loan
Conventional Loans Versus Government Loans
Fannie Mae and Freddie Mac are the two mortgage giants that set mortgage guidelines for Conventional Loans.
- Conventional Loans also referred to as Conforming Loans, are not guaranteed and backed by the federal government
- How conventional loans work is mortgage lenders need to abide by Fannie Mae and/or Freddie Mac Mortgage Guidelines
- This holds true if they want to sell the closed loans on the secondary market to either Fannie and/or Freddie
- If closed conventional loans do not conform to Fannie Mae and/or Freddie Mac’s guidelines, these two GSE’s will not purchase them
The lender is stuck holding them on their books.
Why Are Conventional Loans Called Conforming Loans
This is the reason why mortgage borrowers need to meet Fannie Mae and/or Freddie Mac Guidelines.
- No lender wants to keep the mortgage loans they originate in their books
- Whether they are government loans or conventional loans, all lenders want to sell the loans they closed on the secondary market
Researching Types Of Mortgage Lenders And Deciding What Types Of Mortgage Lenders To Hire
Borrowers have a wide variety of Types Of Mortgage Lenders to choose in applying for a residential mortgage loan.
- They can go to their local bank, a national bank like Chase, Wells Fargo, Bank of America, Citibank, or any regional bank
- They can also choose their local credit union
- Or the hundreds of mortgage bankers or mortgage brokers locally or nationally
- Borrowers now can apply for a residential mortgage loan in the comfort of their own home
- They can apply via online mortgage applications instead of visiting a lender face to face like they needed to do
Everything in mortgage lending, from the initial application, to submitting documents is all electronic now and done via email and/or fax.
Agency Mortgage Guidelines Versus Lender Overlays
As mentioned earlier, not all mortgage bankers have the same lending guidelines.
- Most of them have lender overlays
- So if a borrower may meet all federal and/or conventional loan guidelines does not necessarily mean that they will qualify with all mortgage lenders and/or banks
- Borrowers need to find out what overlays each lender has and whether or not the overlays will affect them in them getting qualified
The Gustan Cho Team at Loan Cabin Inc. NMLS 1657322 are direct lenders with no overlays on government and conventional loans.
Choosing Retail Banks Versus Types Of Mortgage Lenders
Certain mortgage lenders are direct mortgage loan lenders such as retail banks and have retail brick and mortar locations.
- The first thought of most home buyers is to go to their local bank when applying for a home mortgage
- However, most banks have lender overlays and are very strict when it comes to credit and debt to income ratio requirements
- Banks are a good place to get qualified for borrowers with good credit, low debt to income ratios, and no derogatory credit
Qualifying For Home Loans With FDIC Banks
Here are some bullet points about banks:
- Many banks mortgage rates are generally higher than mortgage bankers
- This is due to their higher overhead such as advertising and having retail salaried staff in their residential mortgage lending division
- Banks rely on advertising and name recognition
- Banks do not have to disclose how much they make in yield spread premium like mortgage brokers do
- They are exempt in disclosing many fees
- Mortgage brokers do not have that luxury and need to disclose their yield spread premium as well as other fees unlike banks and mortgage bankers
- Loan Officers at banks do not have to be licensed
- This is since the federal government exempts any loan officer working at an FDIC Bank from licensing
- Advantage of banks is they can do business in all 50 states and not be licensed
Types Of Mortgage Lenders With No Overlays
Gustan Cho Associates at Loan Cabin Inc. NMLS 1657322 is national mortgage bankers. We are direct lenders with no overlays on government and conventional loans. Gustan Cho Associates at Loan Cabin is also correspondent lenders and have investors where we can broker.
Mortgage Bankers close the home loans they originate under their own name and use their own money to fund borrowers loans.
- Mortgage bankers use their own money to fund loans
- Mortgage Bankers have their own warehouse lines of credits to fund loans
- Mortgage Bankers close mortgages under their company name
After they fund the loans, whether they use their own money or use their warehouse lines of credit, mortgage bankers then re-sell the loans they funded on the secondary market to an investor or directly to Fannie and/or Freddie.
Selling Mortgages On The Secondary Market
The proceeds they get from selling their loans on the secondary market, the mortgage banker will pay down their lines of credit so they can repeat the process and originate and fund more loans
- It’s like a car dealership having a floor plan
- The dealer can purchase cars to supply their inventory
- Once the cars get sold to customers, they pay down their floor plan and the process restarts
- Mortgage bankers can have their own overlays
- They decide which type of borrower base to lend to
- Mortgage Bankers can have their own mortgage guidelines that are above and beyond those of FHA, VA, USDA, Fannie Mae, and Freddie Mac
- Mortgage Bankers own guidelines are called lender overlays
- Mortgage bankers do not have to disclose yield spread premiums
- They are exempt from disclosing on how much they make per loan
Unlike banks, many mortgage bankers do not have as much brick locally and have a regional processing center.
Types Of Mortgage Lenders And Credit Unions
Credit Unions are financial institutions that are exempt from licensing like banks. Borrowers who are members of credit unions and have their checking, savings, and credit accounts there, may want to see if their credit union can qualify them for home loans. Many credit unions take care of their members. Credit Union members may want to see if their credit union will give them favorable rates and terms.
- Borrowers with great credit and are members of a credit union, they might get the best rates and lower fees from their credit unions
- Most credit unions take care of their members
- Credit unions, like banks and mortgage bankers, are exempt from disclosing yield spread premiums and other fees and charges unlike mortgage brokers
However, most credit unions have lender overlays and borrowers with less than perfect credit or higher debt to income ratios may not qualify at credit unions.
Are Mortgage Brokers Real Lenders?
Mortgage Brokers are not mortgage bankers and do not fund loans.
- Mortgage Brokers need to get set up with relationships with mortgage bankers
- Mortgage Brokers get paid a commission, also referred to as yield spread premiums, from direct lenders for them referring lenders
- Brokers close loans in the name of the mortgage banker that funds the loans
Using Brokers Versus Mortgage Bankers
There are advantages and disadvantages with working with mortgage brokers versus mortgage bankers.
- Mortgage Brokers can have broker relationships with various different mortgage bankers
- Mortgage Brokers do not have any of their own liability in the event if a loan goes into default
- This is because they are not lenders but more of a matchmaker where they refer their borrowers to a direct lender
- Disadvantages are that mortgage brokers do not have control over the mortgage process
- When mortgage brokers submit a loan to a mortgage banker, the underwriter underwriting the borrower’s file works for the mortgage banker and not the mortgage broker
- The clear to close, closing docs, and funding is at the mercy of the mortgage banker and not the mortgage broker
Mortgage Brokers do offer a valuable service for borrowers who are having a hard time qualifying for a mortgage due to credit or income issues.
Why Use Mortgage Brokers And Not Mortgage Bankers?
Mortgage Borrowers who have the following can benefit from consulting with a mortgage broker:
- Less than perfect credit
- Late payments after bankruptcy and/or housing event
- Lower credit scores
- Higher debt to income ratios
- Short time on the job
- Or have been rejected by a bank, mortgage banker, or credit union
Choosing a mortgage broker may be a better option in getting a residential mortgage loan. Instead of shopping from lender to lender, borrowers can hire the services of a mortgage broker where the broker can do the shopping for the borrower. Mortgage Brokers get paid a commission when borrowers close the loan and not beforehand.
- Brokers work for a commission called yield spread premium
- Brokers need to be licensed and regulated
- Brokers are not lenders
- They need to develop relationships and agreements with mortgage lenders
- The advantage of brokers is if a borrower does not qualify with a particular lender, the broker can take it to a different lender
- Mortgage brokers cannot make more than 2.75% commission from lenders
- Mortgage bankers, banks, and credit unions do not charge commissions
- They get paid on the back end when they resell the loan
- Lenders compensate brokers via yield spread premium
- The mortgage broker needs to disclose the YSP unlike banks, mortgage banks, and credit unions
Various Types Of Mortgage Lenders And Differences
Bankers, credit unions, and mortgage bankers are direct lenders and are captive only to their own products and have their own overlays when offering residential mortgage loans.
- These direct mortgage lenders
- Many banks do not provide unbiased recommendation or selection of other mortgage products
- Many banks or lenders with overlays will not help borrowers raise their credit scores or work with borrowers who do not yet qualify
- Bankers also do not recommend borrowers to other mortgage lenders in the event of borrowers does not qualify for their own products
- Borrowers who do not qualify for their own loan products, the borrower is out of luck and left on their own to find another bank or mortgage banker
Over 75% of the borrowers of The Gustan Cho Team at Loan Cabin Inc. are folks who either gotten a last-minute mortgage loan denial or who are stressing with their current lender and mortgage process.
- There is no reason for any borrower to stress over the mortgage process
- The main and only reason why borrowers get a last-minute loan denial and/or stress during the mortgage process is that they were not properly qualified initially by their loan officer
- They were issued a pre-approval letter when they did not qualify
Mortgage Brokers Versus Mortgage Bankers
On the flip side, mortgage brokers represent dozens of lenders. Many lenders are only captive to their own loan products and do not want to broker loans.
- There are different types of mortgage lenders with different mortgage requirements
- Brokers can be objective and select the appropriate lender that suits the borrowers’ credit and financial criteria
- In lieu of the mortgage brokers services, lenders will compensate mortgage brokers a commission called yield spread premium (YSP) which is disclosed on the Closing Disclosure (CD)
- The yield spread premium paid to the mortgage broker is normally 2.75%
Case Scenario In Using Mortgage Broker Versus Mortgage Banker
For example, if a borrower walks in their local bank where they have a banking relationship with and apply for a mortgage loan does not qualify, the bank can no longer help the borrower:
- However, with a mortgage broker, in the event, if the borrowers get denied for a mortgage from a particular lender, the broker has the borrowers files and can resubmit it to another lender
- The borrower may have to sign new paperwork of the new lender and start the whole mortgage application again
Qualifying For Home Loan With Bad Credit With Direct Lender With No Overlays
Home Buyers needing to qualify for a mortgage with a direct lender with no lender overlays can contact The Gustan Cho Team at Loan Cabin at 262-716-8151. Gustan Cho Associates at Loan Cabin Inc. is a direct lender with no overlays on government and conventional loans. Borrowers with the following can benefit from us:
- Prior bankruptcy
- Deed in lieu of foreclosure
- Short sale
- Late payments after bankruptcy or foreclosure
- Credit scores under 600 FICO
- Short term on the job
- High debt to income ratios
- Qualifying For FHA And VA Loan During And After Chapter 13 Bankruptcy with no lender overlays
- NON-QM Loans
- Bank Statement Mortgage Loans For Self Employed Borrowers
- Condotel Financing
- Non-Warrantable Condo Financing
- FHA 203k Loans
- Down Payment Assistance Programs for first time home buyers
- 90% Loan To Value Jumbo Mortgage
- Bank Statement Mortgage Loan Program with only 10% down payment
Types Of Mortgage Lenders Who Are Direct And Able To Broker
The Gustan Cho Team at Loan Cabin Inc. is a five-star direct lender with no lender overlays . We are also correspondent lenders and have the ability to broker loans.
Borrowers who got denied from a bank, credit union, or other mortgage bankers due to their overlays, you have come to the right place.
- As long as the borrower has an Automated Underwriting System approval per DU Findings please contact us at 262-716-8151 or text us for faster response
- Or email us at email@example.com
- The AUS Approval is the final mortgage loan approval
- I can also help borrowers after a one year waiting period after a bankruptcy
- No waiting period after foreclosure, deed in lieu of foreclosure, or short sale qualify for a residential mortgage loan with our NON-QM Loan Program
- We launched our bank statement mortgage loan program for self-employed borrowers
This BLOG On Types Of Mortgage Lenders Was UPDATED On September 3rd, 2019