Today's word of the day -- "Overlay"

Mortgage and Lending with Liberty Home Mortgage Corporation Originator NMLS ID 120117

The world of mortgage lending is confusing to many and what is even more confusing to borrowers and real estate agents is the difference in information for qualifying from one lender to another.


This is why everyone must first learn the word OVERLAY.  What does overlay mean in the context of mortgage lending?


As an example, FHA has a set of guidelines.  Since they make the rules on FHA loans, lenders can make the FHA guidelines "more" restrictive if that particular lender so chooses. Ultimately, FHA does not give the loan, whichever mortgage lender the borrower is going with gives the loan.


Here are some examples of overlays:

FHA goes to a 500 credit score -- Many lenders will say the minimum score is 620 or 640. The 620 or 640 would be an "overlay".


FHA does not require collections to be paid off, however, some lenders require borrowers to pay off collections in order to qualify. That would be an overlay.


All of the money for the downpayment may be gifted on a conventional loan, however, many lenders require a portion of the downpayment to come from the borrower's own funds. This would be an overlay.


A great question to ask a lender when they tell you that someone does not qualify for a loan is, "Is that YOUR overlay, or is that an investor guideline"? From that point, you will know if shopping around for a different lender is a good idea.


As always, call or text with any scenarios or questions.  1-216-780-1103.



Comments (26)

Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Eighteen Years Experience in Brevard County

Nice explanation.  I did not realize the lenders had options to be even more stringent on an FHA insured loan.  Guess it also pays to shop around for an FHA loan.

Apr 15, 2018 08:03 AM
Khash Saghafi NMLS

Thank you Gary. You can be more stringent as long as you are not discrimanatory (as an example, 620 is the minimum score for EVERYONE and not just a certain class of people), but if you are LESS restrictive than the investor guideline, you will not get the loan bought in the secondary market.

Apr 15, 2018 02:29 PM
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Welcome to AR, Khash Saghafi ... glad to have another LO join our community.  Great job explaining overlays ... and the differences that can exist between LOs/Lenders.  Just another reason to establish quality referral partners and relationships, IMO ... and trust ...


Apr 15, 2018 08:55 AM
Khash Saghafi NMLS

Thank you Gene and thank you for the support!!

Apr 15, 2018 02:30 PM
Kathy Streib
Cypress, TX
Home Stager/Redesign

Hi Khash- congratulations on a well deserved feature!  It was informative and easy to understand!  

Apr 15, 2018 09:17 AM
Khash Saghafi NMLS

Well YOU have a lot to do with it I am sure Kathy, so thank YOU!!!

Apr 15, 2018 02:30 PM
Stephen Turner
House Broker Realty - York, PA

Thank you Khash. dealt with some lenders being more stringent than others and understood it was due "to their underwriters" yet you have spelled out the mechanics of it better than any other explanation I've heard before!

Apr 15, 2018 10:05 AM
Khash Saghafi NMLS

Thank you Stephen, more differences exist due to overlays, but my own underwriters whom I employ do have differences of opinion (the more tenured underwriters are more conservative), which is why I have created a system to eliminate that from our underwriting methods.

Apr 15, 2018 02:32 PM
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

Both agents and clients in your market who are using you for lending are wise.  It's just great that you explained things well and I'm sure you do that for all aspects of the loan process.  I'm also fortunate enough to have a lender that does that.

Apr 15, 2018 12:25 PM
Khash Saghafi NMLS

Thank you Tammy!!! I sincerely appreciate it and definitely do the best that I can do!!

Apr 15, 2018 02:32 PM
Bruce Kunz
C21 Solid Gold Realty, Brick, NJ, 732-920-2100 - Howell, NJ
REALTOR®, Brick & Howell NJ Homes for Sale

Well written, Khash Saghafi. I'd not known this before, but understand it well thanks to your examples! Welcome to ActiveRain. I look forward to more great, well explained information.


Apr 15, 2018 03:28 PM
Khash Saghafi NMLS

Thank you so much Bruce!! I sincerely appreciate the kind words!!

Apr 15, 2018 06:00 PM
JoAnn Moore
The Mortgage Market of Delaware - Georgetown, DE
Home Loans in Delaware

Great information to get out there. And it is so easy to understand the way you have described it. We're a mortgage broker in Delaware. The beauty of being a broker is that you have several lenders to work with. We aren't limited to the 640 or 620 minimum scores, etc. Some have lots of overlays and some don't have any. (This is good for realtors to know. If the borrower's loan  gets denied you can have another lender save the day by not having so many restrictions.)

Apr 15, 2018 04:35 PM
Khash Saghafi NMLS

Thank you JoAnn and you are correct!!

Apr 15, 2018 06:00 PM
Ray Strahl, DTM
Mortgage Power, Inc. - Glendale, AZ
NMLS #195562

Wonderful article as it clearly defines "overlays".  So many of the general public doesn't understand what it is and we as lending professionals need to do a better job with our clients to help them better understand this.

Nice article

Apr 15, 2018 09:04 PM
Khash Saghafi NMLS

Thank you Ray!!! I agree totally!!

Apr 16, 2018 02:16 AM
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Real Estate Agents - Luxury - Divorce

Excellent explanation...hurdles might be a better name :) we are meeting with a new lender today and have the "hurdle" question at the top of our list !

Apr 16, 2018 03:24 AM
Khash Saghafi NMLS

Thank you Sally!! The scary thing is that most loan officers do not know what "overlays" are. The companies pump so much Kool Aid in them, that they do not even realize that there are greener pasteurs in the world.

Apr 16, 2018 04:33 AM
Kat Palmiotti
406-270-3667,, Broker/REALTOR® - Kalispell, MT
Helping your Montana dreams take root

This is a wonderful explanation of overlays. It is definitely useful to know whether someone who doesn't qualify might qualify with a lender with different overlay requirements.

Apr 16, 2018 04:15 AM
Khash Saghafi NMLS

Thank you Kat!!! The biggest overlay (which I will post about later) are innate overlays due to past experience or simply refusing to accept change and new standards of lending. I can type forever on this one.  Thank YOU as always!!

Apr 16, 2018 04:34 AM
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Keep up the good work...

Apr 16, 2018 07:01 AM
Khash Saghafi NMLS

Much appreciated Richie!!


Apr 16, 2018 07:02 PM
Crystal Kilpatrick
Team Leader -Crystal Kilpatrick Group - Austin, TX
CHLMS,CNE, CRS - Austin & Central Texas Home Sales

Good morning Khash!  Good explanation and post.  Have a great day!

Apr 16, 2018 09:41 AM
Khash Saghafi NMLS

Thank you Crystal!!

Apr 16, 2018 07:01 PM
Carol Williams
Although I'm retired, I love sharing my knowledge and learning from other real estate industry professionals. - Wenatchee, WA
Retired Agent / Broker / Property Manager

HI Khash,
I've never heard this explanation before.  Interesting question point:
A great question to ask a lender when they tell you that someone does not qualify for a loan is, "Is that YOUR overlay, or is that an investor guideline"? From that point, you will know if shopping around for a different lender is a good idea.

Apr 16, 2018 03:32 PM
Khash Saghafi NMLS

Thank you for commenting Carol!!

Apr 16, 2018 07:01 PM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Hi Khash and welcome to AR. This is a useful and easy to understand explanation of overlays, which no doubt are a mystery for many.


Apr 17, 2018 08:43 AM
Khash Saghafi NMLS

Thank you Jeff!!

Apr 18, 2018 01:51 AM
Andrea Moore
Welcome Home Loans, LLC - Winter Garden, FL

Excellent reason why Realtors should work with a broker because we have many lenders to choose from, and they all have different overlays. So if the client doesn't fit in one box, we can send them to another without having them restart the process.

Apr 17, 2018 08:59 AM
Khash Saghafi NMLS

Having options is definitely good Andrea!! I agree!!

Apr 18, 2018 01:52 AM
Laura Filip
Laura Filip Broker , Opening doors for All Seasons of Life - Whitesboro, TX
What can we do for you today?

Thank you for sharing this information. Overlay will be asking the lenders that we work with these questions to see what they say. 

Apr 17, 2018 03:04 PM
Khash Saghafi NMLS

Thank you so much for the comment Laura. A lot of loan officers do not know the term by the way. Ultimately, you have to know t he investor guidelines first to know whether or not the company is overlaying the guidelines. As always, you can call me with questions any time. What I love about lending is that the guidelines are consistent whether you are in Alaska or Timbuktoo.

Apr 18, 2018 01:54 AM
Corey Martin
Martin Presence Group - Ruston, LA
Real Estate and Management Solutions

Overlay seems to be a vital word to know. Thank you for educating us on lending vocabulary.

Apr 17, 2018 04:39 PM
Khash Saghafi NMLS

Thank YOU for the kind words and taking time to comment Corey!!

Apr 18, 2018 01:54 AM
Lyn Sims
Schaumburg, IL
Real Estate Agent Retired

Another LO buzzword brought out into the open. 

Apr 21, 2018 01:25 PM
Khash Saghafi NMLS
Liberty Home Mortgage Corporation - Cleveland, OH
Mortgage Loan Officer, Cleveland OH NMLS 1114762

Don't you worry Lyn, I have a bunch of 'em!! lol

Apr 22, 2018 03:10 AM
John Henry, Florida Architect
John Henry Masterworks Design International, Inc. - Orlando, FL
Residential Architect, Luxury Custom Home Design

Had no idea.  Thanks Khash!

Nov 11, 2018 06:56 PM