Mortgage Loan Advisor
20 Nov

What Are The Common Lender Overlays And What You Need To Know About

If you are on the hunt for a home loan, you have most likely heard of mortgage lender overlays.

Mortgage lender overlays are simply additional rules and guidelines set by lenders, apart from those established by government agencies (FHA & VA) as well as government sponsored enterprises (Fannie Mae and Freddie Mac). Lender overlays provide additional protection to mortgage lenders to prevent borrower risk and default.

Each lender sets their own overlays, depending on their ability to handle risk and the prevailing economic conditions. In other words, overlays tend to be tougher in risky economic times.

By setting overlays and managing their risk levels, lenders can provide better mortgage loan rates to home buyers.

If you are applying for a mortgage loan, it is in your best interest to understand how lender overlays work. After all, lender overlays can significantly affect the rates and terms of your loan.

Here are some factors that could lead to stricter mortgage overlays:

  • A low credit score: If you have a lower credit score, that is below 700, lenders are likely to view you as a higher-risk borrower. Your lender may ask you to make up for your low credit score with additional compensating factors.
  • A high debt-to-income ratio: A high debt-to-income ratio can be problematic for borrowers. Mortgage lenders use this ratio to determine an individual’s financial strength. It helps lenders decide whether they are financially capable of taking on the mortgage loan. Do not be surprised if a lender rejects your loan application due to a high debt-to-income ratio.
  • Unstable employment record: If you have a short, unreliable or unstable job history, a lender may pau the approval of your loan in jeopardy. A stable and longstanding employment history typically reflects an individual’s financial stability. Lenders usually look for more than six months of constant employment record.
  • A short credit history: Some mortgage lenders assess a client’s credit history before approving the loan. They generally look for more than one or two lines of credit.
  • Loan Type: Some types of loans, such as FHA, have low requirements. But, they can increase an individual’s likelihood to lender overlays.

In order to find a mortgage lender without overlays, get in touch with Mortgage Solutions. Our knowledgeable, experienced mortgage loan advisors can help you obtain loan products that do not require overlays.

From FHA to VA and Conventional, we offer clients the right loan products catering to their specific needs.

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