What is a Lender Overlay and Why It's Important

A lender overlay is an additional set of guidelines or requirements that a lender may impose on top of the standard guidelines set by Fannie Mae, Freddie Mac, FHA, VA, or USDA. These overlays can vary by lender and can include higher credit score requirements, stricter debt-to-income ratio limits, or lower loan-to-value ratios. These additional guidelines can make it more difficult for borrowers to qualify for a mortgage loan, or may limit the types of loans that a lender offers.

For example, a lender may have a credit score overlay of 720, meaning that borrowers must have a credit score of at least 720 to qualify for a loan with that lender, even though the standard guideline is 660 for Fannie Mae and Freddie Mac. Or a lender may have a higher debt-to-income ratio limit of 50%, meaning that a borrower can have a debt-to-income ratio of up to 50% to qualify for a loan with that lender while Fannie Mae, Freddie Mac, FHA, VA, or USDA have a standard guideline of 45%.

It is important for borrowers to be aware of a lender's overlay policies when shopping for a mortgage loan, as it can impact their ability to qualify for the loan and the terms that they may receive.