HUD Agency Guidelines Versus Lender Overlays On FHA Loans

by Peter Bieda

This Article On HUD Agency Guidelines Versus Lender Overlays On FHA Loans

There are two different types of lending guidelines when it comes to FHA loans. All lenders who are originating and funding FHA loans need to make sure their borrowers meet the minimum HUD Agency Mortgage Guidelines. HUD is the parent of FHA. HUD is the government agency that sets all of the minimum agency guidelines on FHA loans. Lenders who do not meet the minimum HUD Agency Guidelines on the FHA loans they process, underwrite, and fund are not insured in the event the borrower defaults and forecloses on their FHA loan. Mortgage lenders can have higher lending standards that is above and beyond the minimum HUD agency mortgage guidelines. These higher lending requirements by individual lenders are called lender overlays.

Understanding Lender Overlays On FHA Loans

Understanding Lender Overlays On FHA Loans

The second lending guidelines are optional depending on the lender. Lenders can opt to have higher lending requirements that are above and beyond the minimum HUD Agency Mortgage Guidelines. Individual lenders can have higher lending requirements on FHA loans which are called lender overlays. Individual lenders can have lender overlays on just about anything. Typical lender overlays by lenders include credit scores, debt to income ratio, collections and charged-off accounts, gaps in employment, manual underwriting, gift funds, co-borrowers, or just about anything they feel is a risk factor. For example, the minimum credit score requirement to qualify for a 3.5% down payment FHA home purchase loan is 580 FICO. However, a lender may require a minimum credit score requirement of 640 FICO even though HUD’s minimum credit score requirement is 580 FICO. This higher credit score requirement is called a lender overlay on credit score. Lenders can have lender overlays on just about anything. It is not illegal for a mortgage company to have higher lending standards that are above and beyond the minimum guidelines required by HUD. Most lenders have lender overlays. However, Gustan Cho Associates dba Capital Lending Network, Inc. is one of the very few national mortgage companies with no lender overlays on FHA Loans.

Understanding The HUD Agency Guidelines Versus Lender Overlays On FHA Loans

In this paragraph, we will discuss how not all lenders have the same lending requirements on FHA loans.

As long as you meet the minimum lending HUD Agency Mortgage Guidelines, you meet all of the minimum guidelines to qualify for an FHA loan. Not all lenders have the same FHA lending requirements. For borrowers with less than perfect credit, you need to research and choose a lender like Capital Lending Network, Inc. that has zero lender overlays on FHA loans. Over 90% of the lenders will have overlays on FHA loans. Not all lenders have the same FHA lending requirements. Some lenders may have tougher lender overlays than other lenders. Just because one lender says you do not qualify at their lending institution does not mean you do not qualify at a different lender. Many lenders will not accept borrowers with credit scores under 580 FICO as part of their lender overlays. This holds true even though HUD states borrowers with under 580 credit scores and down to a 500 FICO can qualify for an FHA loan with a 10% down payment. Over 75% of our borrowers at Gustan Cho Associates dba Capital Lending Network, Inc. are folks who either have gotten a last-minute mortgage denial or could not qualify due to lender overlays. CLN Mortgage Group has zero lender overlays on FHA, VA, USDA, and conventional loans.

Minimum HUD Agency Mortgage Guidelines On FHA Loans

Minimum HUD Agency Mortgage Guidelines On FHA Loans

To qualify for a 3.5% down payment home purchase FHA loan, HUD requires a minimum of a 580 credit score. Borrowers can qualify for an FHA loan with credit scores lower than 580 FICO and down to 500. However, per HUD Guidelines, any borrower with under 580 credit scores needs a 10 down payment versus a 3.5% down payment. Timely payments in the past 12 months are key in getting an approve/eligible per automated underwriting system. Outstanding collections and/or charged-off accounts do not have to be paid to qualify for an FHA loan. There is a two-year waiting period after the Chapter 7 Bankruptcy discharged date to qualify for an FHA loan. There is a three-year waiting period after foreclosure, deed in lieu of foreclosure, short sale to qualify for an FHA loan. Borrowers in Chapter 13 Bankruptcy repayment plan are eligible to qualify for an FHA loan after being in the repayment plan for at least twelve months. Timely payments during the repayment plan are required as well as Trustee approval. Chapter 13 Bankruptcy does not have to be discharged. Not all lenders originate FHA loans during Chapter 13 Bankruptcy repayment plan without the bankruptcy being discharged.

Qualifying For A Mortgage That Are Experts In Manual Underwriting

A large percentage of mortgage companies will not do manual underwriting as part of their lender overlays. FHA and VA loans are the only two loan programs that allow manual underwriting. 

A large percentage of our borrowers at Capital Lending Network, Inc. are folks who are in an active Chapter 13 Bankruptcy repayment plan. There is no waiting period after the Chapter 13 Bankruptcy discharge date. However, if the Chapter 13 Bankruptcy has not been discharged for at least two years, it needs to be a manual underwrite. Again, most lenders will require a waiting period requirement after the Chapter 13 Bankruptcy discharge date. Many lenders will ot do a manual underwrite. However, Gustan Cho Associates dba Capital Lending Network, Inc. NMLS 1657322 are experts in manual underwriting and have zero lender overlays on FHA loans. We have a national reputation for being able to do loans other lenders cannot do.

Qualifying For An FHA Loans With Chapter 13 Bankruptcy

Qualifying For An FHA Loans With Chapter 13 Bankruptcy

FHA loans during Chapter 13 Bankruptcy repayment plan and after discharged date needs to be a manual underwrite. There is no waiting period after the Chapter 13 Bankruptcy discharged date to qualify for an FHA loan. If Chapter 13 Bankruptcy has been seasoned for less than two years, it needs to be a manual underwrite. Capital Lending Network, Inc. are expert in both FHA and VA manual underwriting. If you need to qualify for a mortgage with a mortgage company licensed in multiple states with no lender overlays on government and conventional loans, please contact us at Capital Lending Network, Inc. at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at CLN Mortgage is available 7 days a week, evenings, weekends, and holidays.

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Javier Martinez November 21, 2021 - 2:43 am

still would like to know a little more about this company. also do you work with the gsfa program for california first time homebuyers or any other down payment assistance programs in california.

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