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 is strategically partnered with a multitude of wholesale lenders to reduce these limitations.
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