Mortgage Guidelines and Lender Overlays

Mortgage guidelines come in two types. Federal lending mortgage guidelines make up the first type that come from government mortgage loans like USDA loans, VA loans, and FHA loans. Mortgage lender overlays are the second form of mortgage guidelines that are being implemented by every individual mortgage lenders which are above minimum guidelines on federal mortgage lending mandated by VA, FHA, Fannie Mae, Freddie Mac, and USDA. Majority of mortgage lenders have mortgage lender overlays yet there are some who don’t, and strictly go off minimum federal mortgage guidelines.

Pre-Approval of Mortgage Applicants

If you have plans to buy a house and you would like to start shopping for a home you can buy, you have to request for a pre-approval letter from mortgage lender. A mortgage lender may or may not have any mortgage lender overlays that are extra requirements for credit requirements aside from the requirements of federal minimum mortgage lending. When you have issues on credit, higher ratios of debt to income, and lower credit scores, make sure you consult with a reliable mortgage lender.

A good example of mortgage lender overlays is the credit score and the debt to income ratio overlays. For instance, FHA requires a FICO credit score of 580 for 3.5 percent down payment FHA loan for home purchase. But, many mortgage lenders don’t prefer to approve mortgage loan borrowers with credit scores below 640 FICO. It is called mortgage lender overlay on the credit scores.

Also a good example of a lender overly is the debt to income ratio lender overlay. A maximum backend debt to income ratio overlay of 56.9 percent is required by FHA. But, many mortgage lenders are going to have a cap on the debt to income ratio of not more than 45 percent. It is referred to as debt to income ratio mortgage overlay. The specific mortgage lender will be the one to decide on the type of mortgage lender overlay they are going to require on applicants for mortgage loan.

What Happens When You are Not Qualified for Home Loan?

In case you have been told that you don’t qualify for home loan, make sure you ask your mortgage loan originator why it is so. Could it be because you failed to meet the guidelines on federal lending mortgage? Was it because you don’t meet mortgage lender overlays? There’s a chance that you don’t meet the specific mortgage lender overlays. Provided that you meet minimum guidelines on federal lending mortgage, mortgage lenders will not have any problems in approving the mortgage loan.

Mortgage Companies Offering Lender Overlays

As stated earlier, when you have bad credit in the past with tax liens, open collection accounts, prior bankruptcy, judgments, prior deed to make up for foreclosure, prior foreclosure, high ratios of debt to income, and lower credit scores, your best option is to choose a mortgage lender with no or very little mortgage lender overlays. The mortgage lenders that have no mortgage lender overlays are going to follow minimum guidelines on federal lending mortgage. All applications for mortgage loan are going to go through either Freddie Mac Automated Underwriting System or Fannie Mae.