What Are Mortgage Lender Overlays

What Are Mortgage Lender Overlays On Government And Conventional Loans: Gustan Cho Associates is a five-star mortgage company licensed in multiple states with no lender overlays on government and conventional loans. So what are lender overlays and why is Gustan Cho Associates so special?  All mortgage lenders need to abide by the minimum agency mortgage guidelines set forth by HUD, VA, USDA, Fannie Mae, Freddie Mac.

Lender Overlays Versus Agency Mortgage Guidelines

Lenders can have higher lending requirements that are above and beyond the minimum agency lending guidelines on government and conventional loans. This higher lending requirement set by each individual lender that is above and beyond the minimum agency mortgage guidelines is called lender overlays. Let’s take an example to better understand what are mortgage lender overlays in the following paragraphs. We will explain what are mortgage lender overlays by using case scenarios so our clients can better understand.

What Are Mortgage Lender Overlays On Credit Scores By Lenders

The minimum credit score required per HUD Guidelines to qualify for a 3.5% down payment FHA Loans is 580 FICO with an approval/eligible per automated underwriting system (AUS). HUD, the parent of FHA, allows borrowers to qualify for an FHA loan with credit scores down to 500 FICO with an automated AUS approval.

FHA Loans With 500 Credit Scores

For any borrowers with credit scores under 580 FICO and down to a 500 credit score, a 10% down payment is required versus a 3.5% down payment. Even though per HUD Agency Guidelines borrowers with credit scores down to 500 FICO can qualify for an FHA loan with a 10% down payment. However, most lenders will not accept any borrowers with under a 580 credit score.

Not All Lenders Have Same Lending Requirements on Government and Conventional Loans

Lenders can refuse to take on certain types of loans due to their lender overlays It is not illegal for lenders not to take on an FHA loan during Chapter 13 bankruptcy due to the risks associated with such a file. Many lenders will not do manual underwriting on FHA and VA loans. This holds true even though the borrower has an approve/eligible per automated underwriting system (AUS) and has the 10% down payment.

Agency Guidelines Versus Lender Overlays

It is perfectly legal for mortgage companies to set their own higher lending standards on government and conventional loans. This is why it is important for borrowers with less than perfect credit and/or other credit issues to understand the basic agency mortgage guidelines on government and conventional loans. If a loan officer from a mortgage company tells you that you do not qualify because your credit score is under 640 FICO, you now know that you do not qualify with that particular lender. However, you do qualify for an FHA loan with a lender with no lender overlays. This is because the minimum credit score requirement for a 3.5% down payment home purchase FHA loan is 580 FICO.

Mortgage Loan Denial By Lenders Due To Lender Overlays

Most lenders who tell their borrowers they do not qualify for an FHA loan often do not tell their borrowers they meet the HUD Agency Guidelines. Most loan officers will just tell borrowers they just do not qualify at the mortgage company they just applied to. These loan officers do not tell the borrowers that they qualify at other lenders with no lender overlays. This is why it is important for borrowers to understand basic agency mortgage guidelines. This is why not all lenders have the same lending requirements on FHA, VA, USDA, and Conventional loans.

Importance Of Understanding Agency Guidelines Versus Lender Overlays

HUD requires a minimum of a 580 FICO on a 3.5% down payment home purchase FHA loans. However, most lenders will have higher credit score requirements such as a 620 to 640 credit score by their loan applicants. This holds even though FHA only requires a 580 FICO for a 3.5% down payment FHA loan. This higher credit score requirement by the individual lender is called a lender overlay on credit scores. Lenders can have lender overlays on just about anything such as debt to income ratios, outstanding collections and charged-off accounts, gift funds, non-occupant co-borrowers.

FHA Lenders With No Lender Overlays

Gustan Cho Associates has a national reputation for not having any lender overlays. By no lender overlays, we mean ZERO OVERLAYS on FHA, VA, USDA, and Conventional loans. This is why not all lenders have the same mortgage guidelines on government and conventional loans due to lender overlays. Gustan Cho Associates has a reputation for being able to do loans other lenders cannot do.

National Reputation Of Being A One-Stop Mortgage Shop

Many borrowers and real estate professionals are amazed that a mortgage company like Gustan Cho Associates exists. Gustan Cho Associates is one of the very few national mortgage companies with no lender overlays on government and conventional loans. To qualify for a home mortgage with a national mortgage company licensed in multiple states, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.