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.
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