Lending and underwriting guidelines set forth by Fannie Mae, Freddie Mac and FHA are what they consider acceptable qualifying factors for successful loan origination for lenders. These guidelines are based on historical profiles where loan repayments were made without default and those where repayment was least likely to occur over the term of the loan.
Lenders may view the underwriting parameters as being not stringent enough and will impose more strict qualifying requirements called overlays. For example, where HUD requires a minimum 580 FICO credit score with a 3.5% down payment to qualify for a FHA loan, a lender may bridge the loan repayment risk with an overlay FICO requirement of 620.
Another typical overlay might be the borrower requirement to pay off all outstanding debts prior to loan commitment, even though it is not an FHA underwriting condition. An increase in Fannie Mae, Freddie Mac or FHA recommended debt-to-income ratios is also a possible overlay imposed by a lender.
Even though a borrower may qualify for a loan under the parameters created by these programs, a final loan commitment will always be subject to what the lender overlays require. If the borrower can’t qualify with one lender, it doesn’t mean the loan cannot be approved through another lender.
As your lending partner, you have my assurance that I will make every effort to make a home purchase a reality for you. I am always here to help. Call or email me for an appointment to start the process.