Lender Overlays on Credit Scores
This guide covers lender overlays on credit scores on government and conventional loans. We will discuss and explain mortgage lender overlays on credit scores. A frequently asked question at Gustan Cho Associates is what are lender overlays on credit scores.
Mortgage Lender Overlays are requirements that are implemented by individual lenders that are in addition to the minimum lending guidelines set by FHA, Fannie Mae, Freddie Mac, VA, USDA.
Each mortgage lending program have their own mortgage lending guidelines. Not every mortgage company will just go off by the federal minimum lending requirements. It is perfectly acceptable for lenders to have their own lending guidelines that surpasses the minimum lending requirements. This is called overlays. In this article, we will discuss and cover lender overlays on credit scores on government and conforming loans.
Common Lender Overlays
The team at Gustan Cho Associates are expert mortgage loan originators with no overlays on government and conventional loans. Banks and mortgage lenders can have overlays on almost any lending guidelines such as the following:
- credit scores
- overlays on debt to income ratios
- on number of seasoned credit tradelines
- on collection accounts
- overlays on waiting period after bankruptcy and foreclosure
- overlays on other additional mortgage lending overlays
On this mortgage article blog, we will be discussing overlays on credit scores on FHA, VA, USDA loans and Conventional loans. Borrowers with less than perfect credit, prior credit issues, low credit scores, little to no credit tradelines, or higher debt to income ratios and can barely meet the federal minimum lending guidelines, it is best to consult with a direct lender who has no overlays like myself.
Speak With Our Loan Officer for Credit Score
Importance of Credit Scores in Qualifying For Mortgage
The two most important factors in qualifying for a home loan are credit and income. Credit scores is what determines whether or not the mortgage borrower qualifies for the loan program they are applying for. For example, FHA requires a minimum credit score of 580 for borrowers to qualify for a 3.5% down payment home purchase loan. If the home buyer has a credit score of under 580, then the home buyer will not qualify for a FHA Loan until he or she has their credit scores to the mandatory 580 credit score mark.
VA DOES NOT HAVE A MINIMUM Credit Score Requirement
Situations When Rental Verification Is Required By Lenders
With FHA loans, any borrowers with under 620 credit scores may need verification of rent if automated underwriting system conditions it. Verification of rent is only valid and will only be honored by lenders if 12 months canceled checks that the borrower has paid to their landlord.
In lieu of canceled checks bank statements showing the rental payments being transferred from the borrower’s bank account to the landlord’s bank account can be documented and provided
Borrowers with credit scores under 620 and is living with family and cannot provide verification of rent, then the only option for borrowers is to increase their credit scores to at least 620. Automated Underwriting System findings normally do not require verification of rent if borrowers credit scores are over 620.
Minimum Credit Score Requirements on Other Loan Programs
Fannie Mae and Freddie Mac requires a minimum 620 credit score for borrowers to qualify for conventional loans. USDA requires minimum credit scores of 580 credit scores.
Verification of rent is required on manual underwriting FHA and VA loans. This holds unless borrowers are living rent-free with family to save money for the down payment on the purchase.
The United States Department of Veterans Affairs does not have a minimum credit score requirement on VA mortgages. All VA minimum credit score requirements required by lenders are all lender overlays on credit scores and not minimum credit score requirements by the VA.
Qualifying For Mortgage With a Lender With No Lender Overlays on Credit Scores
I have so many home buyers who have studied mortgage guidelines and meet agency mortgage guidelines. However, most lenders these borrowers consult with cannot help them because the lender have overlay.
Many may meet the 580 credit score requirements and fully qualify for a home however are told they do not qualify for a mortgage.
These borrowers then walk in to their local bank to get a pre-approval and the bank tells them that they do not qualify because they do not have a 640 credit score. Also, many of our borrowers are members of the U.S. Military who are told they do not meet a certain credit score requirement.
HUD Guidelines versus Lender Overlays on FHA Loans
Most banks and many lenders have lender overlays on credit scores on government and conventional loans. FHA is one of the most popular loan programs in the United States. However, most lenders will not accept the minimum credit scores of 580 required by HUD. Most lenders set a higher credit score standard for their borrowers with overlays on credit scores.
Qualifying For a Mortgage With No Lender Overlays on Credit Scores
Homebuyers who needs to qualify for a mortgage loan and know they meet all mortgage lending guidelines, especially if they meet the minimum credit score requirements, and are told they do no qualify due to lender overlays on credit scores, contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Our team at Gustan Cho Associates has no lender overlays on credit scores. We just go off the federal minimum credit score requirements on all mortgage loan programs.
