Investor Overlays

Let’s face the fact that it’s not easy getting a home loan these days. While the real estate market has turned around here in Denver and in other parts of the country, the lending environment is still lagging behind. The restrictions and guidelines have not gotten any better. In fact, in some cases, they have gotten worse with fewer people becoming eligible to get a home loan.

Not all lenders are created equal and for that reason, we try to counsel our clients to seek out lenders who hold their loans and do not sell them in the secondary market. Sometimes, lenders who hold on to their loans can get deals done when others cannot. This is due in part to what the industry calls “investor overlays” and here is how it works.

Let’s say you have a conforming loan (below $417,000). A lender will follow the guidelines set forth from Fannie Mae or Freddie Mac, but since this particular mortgage lender is selling the loan in the secondary market, they also need to consider the overlays. An overlay is another restriction or guideline that the investors buying the loan place on top of or in addition to the Fannie and Freddie guidelines. The investors buying the loan are saying in part that Fannie and Freddie’s restrictions are not enough, so they are going to add more before they buy the loan.

These additional restrictions make it even harder for the average consumer to qualify. Therefore, some loans that seem like they should easily be approved are denied. It also explains why the average consumer can be denied, walk across the street to ABC lender who DOES NOT sell their loans, and get approved.

Of course, this does not happen with every loan, but I am seeing more and more deals get done that do not have investor overlays. It is in the best interest of the consumer to ask these questions of the mortgage lender before they get started. I would suggest seeking out local lenders that hold their own mortgages. There is no doubt that there are some lenders who are very difficult to work with. If you would like to know more, send me an email and I would be happy to help.

Dan Polimino is an Owner/Broker with Keller Williams Realty DTC. He can be reached at 


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