What are Mortgage Lender Overlays?

Do you know what a lender overlay is?

Lender overlays are additional criteria that are above and beyond the minimums for the loan programs for which a borrower is applying. For example, did you know FHA does allow debt-to-income ratios (DTI) above 50%? Many lenders cap their loans’ DTI to 50%, and that is fine. However, the troubling part is that it is too common for a loan officer to say “FHA” does not allow the DTI, versus the correct statement of “the lender I represent” does not allow that DTI. In short, a denial at one lender does not equal a denial at the next.

Overlays do not stop with debt-to-income restrictions, either. Property types, number of trade lines, time on job, down-payment sources, gift limitations, time since a short sale/bankruptcy/etc., all can be considered as overlays to a lending institution. Another one we have seen lately is realtors being advised you cannot flip a home to an FHA buyer with fewer than 90 days seasoning if the increase is more than 20%. Again, this is simply not true.

In short, one lender cannot cater to every lending profile out there. We are an independent mortgage company that offers wholesale interest rates to our clients without any junk fees. We have strategically partnered with a multitude of wholesale lenders so that we may utilize the best service, at the best rates for our clients, while ensuring the approval process is as smooth and efficient as possible.