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High Debt Ratios Won’t Kill Deals w/ Freddie and “No Overlays”

We received a frantic call yesterday from a borrower whose deal was falling out of escrow b/c he could not get his loan approved. He had used the internet to shop for “the lowest rate” and had hooked up with an East Coast Bank. The problem: his debt ratio is 54%.

Most major banks do not allow debt ratios over 45%. Freddie Mac, however, allows debt ratios up to 55%, and we have several lenders that have “no overlays”. This means if Freddie Mac’s automated “LP” underwriter approves the loan, so will the lenders with “no overlays”, irrespective of the debt ratios. Very few lenders honor LP approvals in this manner.

It took us about an hour yesterday to obtain an LP approval for the borrower who called. Once we had the LP approval, we knew for certain we could obtain financing on his behalf. We will have loan documents in about 2+ weeks, and he can now release his loan contingency.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167