What Is An Underwriting Guideline Overlay?

Mortgage and Lending with Guaranteed Rate NMLS# 2611 NMLS #151088

Why does it sometimes seem that underwriting guidelines vary from mortgage company to mortgage company?  Well, it is because, sometimes they do.  Each agency (Fannie Mae, Freddie Mac, FHA, VA, USDA) sets the minimum guidelines for the approval of a mortgage that they will back if it defaults.  An overlay is when a mortgage lender adds an additional restriction to their guidelines.  One huge misconception is that

There are many types of overlays.  Some of the most common include:

Agency Guideline

Lender/Investor Overlay

FHA now has a 580+ minimum FICO

Many mortgage lenders now have a 640+ FICO minimum for FHA loans

FHA's maximum DTI is set by DU findings

Many mortgage lenders will limit the borrowers DTI to 50% or 55% even if DU approves higher

Not all programs require the review of Federal income tax transcripts

Most mortgage lenders require a processed IRS 4506-T form for each borrower on the loan

FHA has a 90 Day Flip Waiver in place for owners who have been on title <90 days from the contract acceptance date

Some mortgage lenders will not honor the 90 Day Flip Waiver

Fannie Mae allows up to 10 financed properties per borrower

Some mortgage lenders have a limit of 4 financed properties per borrower

Fannie Mae HomePath mortgages for condos only require limited information

Some mortgage lenders will a condo project review

Not all agencies require a credit inquiry explanation letter

Most every mortgage lender will require a credit inquiry explanation letter

When an Underwriter makes a condition that someone doesn't agree with, they are not just doing it because they want to.  There is a valid reason behind it. 

With a mortgage transaction, everyone is focused on the closing.  Of course they are, since without a closing, keys don't change hands and real estate agents do not get paid.  It's easy to get upset when you seeing someone standing in the way of that goal.  What most everyone forgets is what happens after the closing. 

If the buyer's loan ever defaults, it's the mortgage lender who will incur the financial losses.  No one comes back to the seller demanding they take over the mortgage of the home.  Likewise, no one comes back to the real estate agents demanding that they return their real estate commissions.  None of that happens, except that the mortgage company is solely on the hook for the financial losses.  That can equate from the tens of thousands to the hundreds of thousands.  Those are huge numbers that no one else is sharing in now. 

The next time that you see an underwriting condition that you don't agree with, don't whine, gripe, or complain about it, learn from it.  Chances are, it will not be the last time that you see it.  The more everyone keeps an open mind to learning, the easier you will find successful closings.  While you may not really care about a mortgage companies long term success, I would bet that most of the employees do.  It it their job to ensure that only the highest quality of loans are approved and subsequently approved.  Ultimately, that is in everyone's best interests.


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It is always advisable to consult with a knowledgeable lending professional when navigating today's turbulent mortgage and real estate marketplace.  I am committed, qualified and equipped to help you evaluate your options!


Also check out:

Conventional Financing Mortgage Program Overview/Updates

FHA Financing Mortgage Program Overview/Updates

USDA Financing Mortgage Program Updates  


Programs Include:


  • Conventional (Fannie Mae & Freddie Mac)

  • FHA, USDA, & VA

  • Jumbo to $3,000,000

  • Bank Statement Program for Self-Employed Borrowers

  • Foreign National Program

  • Investor Cash Flow

  • Non-Warrantable Condos

  • Georgia Power Leaseholds for Lake Burton, Rabun, & Seed


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  • Rodney Mason is a Licensed Branch Manager located in Atlanta, GA.   He can be reached at (404) 591-2453.
  • Providing financing for all cities across Georgia including: Acworth, Albany, Alpharetta, Athens, Atlanta, Augusta, Austell, Avondale Estates, Blairsville, Bloomingdale, Blue Ridge, Bogart, Brunswick, Buckhead, Buford, Canton, Carrollton, Cartersville, Chatsworth, Clayton, College Park, Columbus, Commerce, Conyers, Covington, Cumming, Dahlonega,  Dacula, Dalton, Dawsonville, Decatur, Doraville, Douglasville, Duluth, Dunwoody, East Point, Fayetteville, Flowery Branch, Gainesville, Greensboro, Hampton,  Hapeville, Hinesville, Hiram, Jackson, Jefferson, Jonesboro, Kennesaw, Lagrange, Lawrenceville, Lilburn, Lithia Springs, Macon, Madison, Metter, Morganton, Morrow, Newnan, Norcross, Oakwood, Peachtree City, Pooler, Richmond Hill, Riverdale, Rome, Roswell, Sandy Springs, Savannah, Scottdale, Statesboro, Stockbridge, Stone Mountain, St Marys, Sugar Hill, Suwanee, Thomasville, Thunderbolt, Tucker, Tybee Island, Valdosta, Waleska, Warner Robins, Waycross, Wilmington Island, Winder, Woodstock, and many more.

    Providing financing for all cities across Alabama including:
    Alabama Port, Anniston, Athens, Auburn, Bessemer, Birmingham, Boaz, Bridgeport, Cedar Bluff, Chickasaw, Clayton, Coden, Dauphin Island, Decatur, Dothan, Eufaula, Fairfield, Fairhope, Florence, Foley, Forestdale, Fort Morgan, Fort Payne,Gasden, Grand Bay, Gulf Shores, Heron Bay, Homewood, Hoover, Jasper, Josephine, Madison, Meadowbrook, Midfield, Mobile, Mon Louis, New Hope, Orange Beach, Oxford, Oyster Bay, Phenix City, Prichard, Rainbow City, Saraland, Satsuma, Scottsboro, Selma, Troy, Theodore, Tillmans Corner, Trussville, Tuscaloosa, Vestavia Hills, Warrior and many more.

  • Providing financing for all cities across Florida including: Altamonte Springs, Atlantic Beach, Boca Raton, Bradenton, Cape Coral, Clearwater, Coral Springs, Daytona Beach, Delray Beach, Destin, Fort Lauderdale, Fort Myers, Fort Walton Beach, Gainesville, Hollywood, Homestead, Jacksonville, Jupiter, Key Largo, Key West, Lake City, Largo, Marathon, Mexico Beach, Miami, Naples, New Smyra Beach, Ocala, Orlando, Palm Coast, Panama City Beach, Pensacola, Pompano Beach, Port St Joe, Sanibel Island, Sanford, Sarasota, St Augustine, St Petersburg, Tallahassee, Tampa, Vero Beach, West Palm Beach, & Winter Park, and many more.


  • Providing financing for all cities across South Carolina including: Aiken, Anderson, Beaufort, Bluffton, Charleston, Columbia, Conway, Edisto Island, Florence, Greenville, Hilton Head, Johns Island, Myrtle Beach, North Augusta, Orangeburg, Rock, Hill, Spartanburg, Sullivans Island, Summerville, and many more.  

    Providing financing for all cities across Tennessee including: Athens, Brentwood, Bristol, Chattanooga, Clarksville, Cleveland, Cookeville, Dyersburg, Franklin, Gatlinburg, Greeneville, Johnson City, Kingsport, Knoxville, Maryville, Memphis, Morristown, Murfreesboro, Nashville, Newport, Oak Ridge, Pigeon Forge, Sevierville, and many more


All mortgage lending guidelines are accurate at time of post, but are subject to change without notice.  Please call for the most current information.




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Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Rodney - Great explanation of lender/investor overlays.  Having had this conversation just yesterday with a prospect who contacted me about his mortgage needs.  I too had to explain that just because FHA says they will insure some with a certain score doesn't mean any FHA approved lender has to give him a loan.  Just because FHA says he can have two FHA loans under certain circumstances doesn't mean that any lender has to give him one.  Lastly, just because he he has documentation that says those collection and derogatory accts are a mistake doesn't mean any lender has to accept them.

Jan 01, 2011 01:26 PM #1
Rodney Mason
Guaranteed Rate NMLS# 2611 - Atlanta, GA
VP of Mortgage Lending - AL, FL, GA, SC, & TN

Donne....Your are so right.  Just because FHA says a 580 score is OK, try finding any lender willing to approve that mortgage.  Your case sounds like the classisc "layering of risk".  While one "might be" doable (except probably credit score of course), add too many, and its dead. 

Jan 02, 2011 06:37 AM #2
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VP of Mortgage Lending - AL, FL, GA, SC, & TN
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