Investor Lender Overlays

Investor Lender Overlays And How It Prevents Getting Mortgage Approval

ByGustan Cho
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This BLOG On Investor Lender Overlays And How It Prevents Getting Mortgage Approval Was UPDATED On April 26th, 2019

Home buyers need to qualify for a mortgage before they can go shop for a home.

  • Almost all realtors will require a pre-approval before showing a home buyer a home
  • Some realtors will even go to the extent of asking to speak with the mortgage loan originator who issued the pre-approval prior to accepting a real estate purchase offer

Investor Lender Overlays Versus Agency Guidelines

Home Buyers intending in buying a home now or in the future should consult with a mortgage loan originator to see whether they qualify.

  • Just because borrowers have a good income, good credit, and the down payment does not mean they will qualify for a mortgage
  • On the flip side, just because borrowers have bad credit does not mean they will not qualify for mortgage
  • Borrowers with the following can qualify for mortgage:
    • have poor bad credit
    • low credit scores
    • prior bankruptcy
    • prior foreclosure
    • prior deed in lieu of foreclosure
    • prior short sale
    • unsatisfied collections
    • judgments
    • tax liens
    • charge offs
    • prior late payment does not mean that borrowers do not qualify for a mortgage either

Qualifying For Home Loan With No Investor Lender Overlays

There are many factors that determine whether borrowers qualify for a mortgage.

  • Just because borrowers get denied by one lender does not mean they do not qualify for a mortgage with a different lender with no investor lender overlays
  • Borrowers may not qualify for a mortgage with the particular lender but that does not mean they do not qualify for a mortgage
  • Each mortgage lender have their own lending requirements which are called investor lender overlays
  • One lender may have investor lender overlays that might affect a borrower from qualifying with them but another lender might not have those investor lender overlays
  • An example of this type of situation is when the lender requires a certain amount of credit tradelines and the terms of the credit tradelines
  • Credit Tradelines are not mortgage guidelines requirements
  • A credit tradeline is when consumer has developed a credit payment history with a creditor such as a credit card company, auto loan, student loan, or any other creditor that is reporting on credit payment history to the three credit reporting agencies for at least 12 months

Overlays On Credit Tradelines

There are lenders that will not qualify borrowers for a mortgage loan if they do not have 3 credit tradelines.

  • Some lenders will want to see 24 months of credit history instead of 12 months
  • Other lenders might require rental verification even though DU FINDINGS and/or LP FINDINGS does not request it
  • Rental verification is only valid if the mortgage loan applicant has been making their rental payments with a check for the past 12 months
  • Unless the mortgage loan applicant has been renting from a registered licensed property management company, 12 months canceled checks and/or bank statements are exempt
  • Borrowers renting their home from a registered licensed property management company, then VOR Form provided by lender needs to be signed and completed by the property management company manager
  • If a mortgage lender requests rental verification and borrower cannot provide it because they are currently living with family or paying cash for their monthly rent, borrowers will not qualify for a mortgage with the mortgage lender who requesting VOR

Why Do Mortgage Lenders Ask For Rental Verification And The Importance Of Rental Verification

It is so important for borrowers renting to pay landlord with a bank check so they can prove they have rental verification.

  • Rental verification is extremely important
  • Mortgage lenders look at 5% or less in payment shock as compensating factors
  • The reason being is because of payment shock
  • Borrowers who cannot provide rental verification, that means the mortgage underwriter will view that they are going from paying $0 dollars in rent to a new mortgage payment which is called rental shock
  • However, if the renter is currently paying $1,000 in rent and new proposed principal, interest, taxes, and insurance housing payment is $1,250, then the rental shock is only 25%
  • Mortgage lenders will feel more at ease because borrowers are used to paying $1,000 and new proposed mortgage payment will only increase by $250.00
  • Unfortunately, any cash rental payment to the landlord even with a receipt signed by the landlord is not valid rental verification

Do You Qualify For Mortgage?

Borrowers who have been told no from a bank, credit company, or mortgage banker, ask them why they do not qualify with them and what is the reason why they do not qualify with them.

  • Chances are that it is because of their own invetor lender overlays
  • Borrowers need to consult with a mortgage banker and/or mortgage broker who has little or no invetors lender overlays and will just go off automated findings

Qualifying Factors To Qualify For A Mortgage

One of the factors that determine whether borrowers qualify for a mortgage or not is they need verifiable income.  Cash income does not count in mortgage qualification.  To qualify for a mortgage, here is the check list to see whether borrowers qualify or not.

  • Two-year employment and residential history
  • Need to have worked for two years
  • Borrowers do not need two years of continuous work history
  • Gaps in employment are allowed
  • Unemployed or out of work for six months or less, then borrowers need to have been employed for at least 30 days on a new job as a full-time employee
  • Borrowers unemployed for six or more months, then need at least six months on a new full-time job
  • Borrowers can qualify for a mortgage with a part-time job or multiple part-time jobs
  • However, if employment is only part-time, then borrowers need two years of employment history
  • Self-employed or 1099 wage earners need to show two-year employment history
  • Minimum credit score to qualify for a 3.5% down payment FHA loan is 580
  • Borrowers can qualify for an FHA loan with credit scores between 500 and 579
  • However, the minimum down payment for borrowers with credit scores under 580 is 10%.

Debt To Income Ratio Guidelines

  • Maximum debt to income ratios to qualify for FHA Loans for borrowers over 620 credit score is 46.9% front end and 56.9% back end debt to income ratios
  • For borrowers who have a higher debt to income ratios and/or cannot document income, FHA allows non-occupant co-borrowers to be added on the mortgage loan note
  • This is as long as the non-occupant co-borrower is a relative and/or family member
  • 100% gift funds are allowed by relative and/or family members for the down payment and closing costs

Credit Guidelines 

  • Open collections are allowed
  • With non-medical collection accounts over $2,000 balance, 5% of the unpaid collection balance will be used towards calculating debt to income ratios
  • Non-medical collections are exempt.
  • Prior bad credit is acceptable
  • However, timely payments in the past 12 months are required
  • 2 year waiting period after bankruptcy discharge date for FHA, VA, USDA Loans
  • 3 year waiting period after foreclosure and/or deed in lieu of foreclosure from the recorded date reflected on public records to qualify for FHA and USDA Loans
  • 3 year waiting period after short sale date reflected on the HUD Settlement Statement to qualify for FHA and USDA Loans
  • Conventional loans require a minimum credit score of 620, with 5% down payment, and no greater than 45% back end debt to income ratios and no lender overlays
  • As long as borrowers get an approve eligible per DU or LP FINDINGS, Gustan Cho Associates Mortgage Groups will not just close the loan but we will close it on time
  • Jumbo mortgage loans with 10% down payment, 90% loan to value available for high home buyers with 740 credit score
  • Minimum credit score for Jumbo mortgages is 620 with Gustan Cho Associates Mortgage Group

Qualifying For A Home Loan With Bad Credit Or High Debt To Income Ratios

As mentioned in earlier paragraphs, as long as you have documented income, you will qualify for a mortgage loan.

  • Borrowers with credit and/or financial issues and have documented income, still, consult with a mortgage lender who is willing to work with borrowers
  • It is not if borrowers will qualify for a mortgage but when they can qualify for a mortgage
  • Over 75% of our borrowers are those who could not qualify elsewhere due to the particular investor lender overlays but I got them qualified and got their mortgage loan closed and funded
  • Home Ownership is still the American dream
  • Every hard working American should be a homeowner
  • The time to start is now and contact a mortgage lender to see if qualify for a mortgage
  • If borrowers do not yet qualify then many loan officers will help borrowers in qualifying for mortgage
  • There are borrowers who I work with for months and finally, get them qualified for a mortgage loan

 

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