Most mortgage lenders typically disapprove of overdrafts in bank statements. The presence of overdrafts in bank statements is viewed negatively by lenders, as it indicates a lack of financial responsibility on the part of the account holders. Even a single overdraft can lead many lenders to reject a mortgage loan application. It is advisable to avoid submitting a bank statement that displays overdrafts, even for account holders with overdraft protection.

There are ways of getting mortgage approvals with a few overdrafts if there is no way of avoiding providing bank statements with overdrafts.

Borrowers should recognize the significance of providing a well-crafted letter of explanation when addressing overdrafts in bank statements. If you have inquiries regarding overdrafts or seek a better understanding of your bank’s policies, it is advisable to reach out to your bank directly. Keep in mind that banking policies may differ, so it’s crucial to acquaint yourself with the terms and conditions specific to your account.

How To Get Approved For a Mortgage With Overdrafts In The Past 12 Months

Individuals who have experienced overdrafts in their bank statements within the last 12 months should assess the frequency of such occurrences, specifically checking for any instances within the past 60 days. Mortgage lenders strongly disapprove of overdrafts in bank statements, as it indicates a perceived inability to manage finances from the perspective of mortgage underwriters.

I’m familiar with numerous business proprietors who are prepared to cover the $35 overdraft fees in their bank statements. The bank approves the checks and ensures that the required funds to address the overdraft are made available within the next day or two. However, this approach differs from how mortgage lenders perceive the situation.

Lenders view even a $5 overdraft as a significant matter. In the mortgage sector, only a handful of lenders permit overdrafts, provided there is a well-crafted letter of explanation accompanying them. Borrowers encountering one or two overdrafts in their bank statements need not worry, as it generally won’t pose an issue. However, if there is a pattern of habitual overdrafts in bank statements month after month, the likelihood of securing mortgage approval diminishes significantly.

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What is Overdraft in Bank Statements

An overdraft in bank statements occurs when the total of your written checks exceeds the balance in your checking account. In such instances, the bank permits the transaction to proceed, requiring you to promptly replenish the deficit. Essentially, an overdraft is a brief loan offered by the bank to address the shortfall in your account balance. Such overdrafts may arise from various transactions and transfers.

How Does Overdrafts Occur in Bank Statements

Here’s the typical process: banks commonly establish a cap on the amount permitted. This limit might differ based on your account type, banking history, and other relevant factors. Charges: Financial institutions typically impose fees related to overdrafts in bank statements. Such fees may encompass a charge for each transaction surpassing your account balance, along with extra daily or monthly fees until the overdraft is settled.

Timely repayment is generally anticipated for overdrafts. If bank accounts remain in a negative balance for an extended period, additional fees may be imposed by the bank, or alternative actions may be taken. It is essential to promptly address and settle any overdrafts reflected in bank statements to avoid such consequences.

It’s important to know your bank’s policies regarding overdrafts, including the fees involved and any options they offer for overdraft protection or linked accounts. Overdrafts can be a convenient option in emergencies. However, relying on them frequently can lead to financial challenges due to accumulating fees. To manage your finances effectively, regularly monitoring your bank statements, keeping track of your account balance, and being aware of any overdraft charges are crucial practices. 

Solutions To Overdrafts In Bank Statements

Borrowers who haven’t experienced overdrafts within the last 12 months but have a history of overdrafts dating back 12 months need not be concerned. However, if borrowers submit a minimum of 60 days’ worth of current bank statements without any overdraft occurrences in the past 60 days, it may still present a challenge. The underwriter will assess whether the borrower had overdrafts in their bank statements over the past 12 months. This determination is facilitated by a specific column on the bank statements that indicates the year-to-date overdraft fees. This particular section stands out conspicuously to mortgage underwriters.

60 Days of Bank Printouts Versus Bank Statements

There is a solution to avoid disclosing or indicating that borrowers experienced overdrafts in the preceding 12 months. It’s not a deceptive strategy or a form of mortgage fraud; rather, it involves a principle of not explicitly discussing such matters. All lenders typically require a review of 60 days’ worth of bank statements. For borrowers who had overdrafts within the past 12 months but none in the last 60 days, presenting 60-day bank statements could inadvertently reveal their prior overdrafts. This is due to a specific column indicating year-to-date overdraft fees. Nonetheless, bank printouts are acceptable in lieu of actual bank statements, offering an alternative that allows for the submission of bank statement printouts instead of the original statements.

Providing Bank Statement Printouts Versus Actual Bank Statements

Many bank statement printouts lack information on year-to-date overdraft fees, making it challenging for underwriters to identify any overdrafts within the last 12 months. To obtain these printouts, bank account holders can visit their bank and request a 60-day statement from the teller. When doing so, it is advisable to inform the bank teller about the mortgage application and ask them to sign, stamp, and date each page of the 60-day bank statement printout. Notably, there is no designated column indicating year-to-date overdraft fees on these printouts. Nevertheless, mortgage underwriters accept these statement printouts as substitutes for actual bank statements.

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Qualifying For Home Loan With a Mortgage Company With No Overlays

Home Buyers and Homeowners who need to qualify for a home loan with a national mortgage company licensed in multiple states with no mortgage lender overlays on government and conventional loans can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com.

Gustan Cho Associates Mortgage Group does not impose any lender overlays on FHA, VA, USDA, and Conventional loans. The professionals at Gustan Cho Associates specialize in non-QM loans and mortgages based on bank statements, particularly for self-employed borrowers. Furthermore, the expertise of the team extends to handling overdrafts in bank statements for a comprehensive financial evaluation.

We provide numerous non-QM loan options and alternative financing mortgages, including mortgages available one day after foreclosure, asset-depletion mortgages, and fix-and-flip loans tailored for real estate investors. Additionally, we specialize in commercial loans. Gustan Cho Associates has gained a national reputation as a comprehensive mortgage solution provider, offering a range of options such as government, conventional, non-QM, and commercial loans. Our dedicated team at Gustan Cho Associates is at your service seven days a week, including evenings, weekends, and holidays. We understand the importance of catering to your financial needs promptly, ensuring a seamless experience with our diverse loan programs. Moreover, our expertise extends to assisting clients with any concerns related to overdrafts in bank statements.

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Frequently Asked Questions (FAQ) About How Underwriters View Overdrafts in Bank Statements

Why do mortgage lenders disapprove of overdrafts in bank statements? Mortgage lenders view overdrafts in bank statements as an indicator of financial irresponsibility, suggesting a perceived inability to manage finances. Even a single overdraft can lead to rejection of a mortgage loan application.

Can I still get mortgage approval if I have overdrafts in bank statements in the past 12 months? Yes, it is possible, but the frequency and recent occurrences of overdrafts matter. Borrowers with one or two overdrafts may still secure approval, especially with a well-crafted letter of explanation. However, a pattern of habitual overdrafts poses a higher risk of rejection.

What is the significance of providing a letter of explanation for overdrafts in bank statements? A well-crafted letter of explanation can help borrowers address overdrafts in bank statements by providing context and demonstrating financial responsibility. It is a crucial document when dealing with lenders who may be concerned about overdraft occurrences.

How do overdrafts occur in bank statements? Overdrafts in bank statements happens when written checks exceed the account balance. Banks may allow the transaction, creating a temporary loan that needs prompt repayment. Overdrafts can result from various transactions and transfers.

What is the typical process for overdrafts in bank statements? Banks set limits on overdraft amounts, charging fees for each transaction surpassing the account balance. Repayment is expected promptly, and prolonged negative balances may lead to additional fees or other actions by the bank.

Are there solutions for addressing overdrafts in bank statements when applying for a mortgage? Borrowers can consider providing 60-day bank statement printouts instead of the original statements, as they may not explicitly show year-to-date overdraft fees. This alternative can help avoid revealing overdrafts within the last 12 months.

This blog about how underwriters view overdrafts in bank statements was updated on January 10th, 2024.