Lender overlays are additional lending requirements by the individual mortgage lender on top of the minimum agency guidelines of FHA, VA, USDA, Fannie Mae, Freddie Mac. Individual mortgage lenders can have any type of additional mortgage loan requirements they want. However, there are mortgage companies like Loan Consultants that have no lender overlays on government and conventional loans.
If you are in the market for a new home and are doing your due diligence with regards to housing guidelines to determine if you are eligible for a mortgage, there is one key area you are probably not looking into. You need to make sure you understand the different lending guidelines of different banks.
What it comes down to is that banks can determine how much risk they want to take on and they can create guidelines to minimize their risk. You might get some guidelines from Bank A and they could be totally different from Bank B. These are what the industry calls Lender Overlays, or expanded guidelines on top of what Fannie Mae, Freddie Mac, FHA, or VA will allow. In a general sense, think of the Fannie Mae guidelines as the primer on your walls and the lender overlays as the color paint over it. You normally don’t see a house with just primer on the walls, and you won’t find many lenders just using standard guidelines.
Now, just because Fannie, Freddie, FHA, and VA set the underwriting guidelines for residential mortgages, these institutions don’t directly lend to the borrowers. What they do is purchase and/or securitize the loans that conform to their guidelines. Lenders who write loans will have an easy time selling the loan once it is closed knowing they followed these pre-determined guidelines. Now where lenders have their lender overlays, they are doing this as they are the ones approving and closing the loans.
Now you may be under the assumption that the minimum credit score for an FHA loan would be 580 and there is a possibility that you could go as low as 500 with a minimum 10% down payment. This may be the case and FHAs guideline, but as we spoke about, you could go to a lender that is going to want a 620+ credit score.
In terms of the lender, this is where they are comfortable in approving the loan even though HUD may say something different. Now, this isn’t to say they won’t take any FHA loans, but they will get you approved for an FHA loan with their own credit score overlay.
There are different lender overlays besides ones that are credit score-based. There is a multitude of items that a lender can create an overlay for on top of the pre-determined guidelines. Lenders can also have overlays that deal with the following: max loan-to-value, max debt-to-income ratio, and other items. Take as an example a streamline refinance where there is no requirement for an appraisal or credit score, now what a lender might do is require an appraisal and a minimum credit score.
The best thing you can do these days is to find a lender without lender overlays, and I have the solution. Look no further than Loan Consultants and contact us at 844-275-2007. Text us for a faster response. The team at Loan Consultants offers mortgage products that do NOT require additional overlays.
We can get your loans closed by just using the national guidelines for loan origination. Where the other big banks will deny you or make you jump through hoops to get you approved, that is not the case here. We are here to make sure we try and get 100% of our loans to close. We are a group of dedicated professionals who are doing away with lender overlays and getting borrowers into new homes! Don’t hesitate to call and stop wasting your time with big banks who have too many overlays to keep track of!