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

By
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.

 

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Barbara Todaro 04/15/2018 04:51 AM
Topic:
Mortgage / Finance
Groups:
1st Time Buyers
ActiveRain Network Referral Base
Mortgage Bankers
Cuyahoga County Ohio Real Estate
Consumer Mortgage Tips
Tags:
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Ambassador
1,552,175
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Thanks so much Khash - appreciate the information and it's the first I've heard about this term. How is that possible?  Glad Barbara chose to reblog this - and so happy to find a new Rainer to follow. D 

Apr 15, 2018 07:46 AM #4
Rainmaker
1,449,555
Gary L. Waters, Broker Owner, Waters Realty of Brevard, LLC
Waters Realty of Brevard, LLC - Rockledge, FL
... a small office, delivering big service!

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 #5
Rainmaker
1,143,590
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 ...

Gene

Apr 15, 2018 08:55 AM #6
Ambassador
3,266,897
Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

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

Apr 15, 2018 09:17 AM #7
Rainer
225,025
Stephen Turner
TriCorner Homes (TriCorner Realty) - York, PA
The BIG Guy of NEW HOME SALES

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 #8
Ambassador
2,702,380
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 #9
Rainmaker
416,069
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.
Bruce

 

Apr 15, 2018 03:28 PM #10
Rainmaker
405,276
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 #11
Rainer
152,806
Ray Strahl, ACB, ALB
Amerifirst Financial, Inc. - Peoria, 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 #12
Rainmaker
2,732,989
Sally K. & David L. Hanson
Keller Williams 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Divorce - Short Sale

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 #13
Rainmaker
1,158,482
Kat Palmiotti
Grand Lux Realty, 914-419-0270, kat@thehousekat.com - Monroe, NY
The House Kat

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 #14
Rainmaker
2,258,089
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 #15
Rainmaker
365,956
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 #16
Rainmaker
916,359
Carol Williams
U.S.: I specialize in helping agents who have been in the business 2 years or less create a thriving business. - Wenatchee, WA
"Customized Mentoring & Marketing Services"

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 #17
Ambassador
3,550,949
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

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.

Jeff

Apr 17, 2018 08:43 AM #18
Rainer
17,753
Andrea Moore
The Mortgage Market of Delaware - Lewes, DE

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 #19
Rainmaker
609,215
Laura Filip
RE/MAX UTOPIA , Serving all of Texoma - 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 #20
Rainmaker
149,024
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 #21
Rainmaker
1,361,549
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Area Real Estate

Another LO buzzword brought out into the open. 

Apr 21, 2018 01:25 PM #22
Rainmaker
47,384
Khash Saghafi
Liberty Home Mortgage Corporation - Cleveland, OH
Mortgage Loan Officer, Cleveland Ohio

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

Apr 22, 2018 03:10 AM #23
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Khash Saghafi

Mortgage Loan Officer, Cleveland Ohio
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