How Underwriters View Overdrafts in Bank Statements

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.

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 had any overdrafts in the last 12 months but have a history of them don’t need to worry too much. However, if you provide at least 60 days’ worth of recent bank statements showing no overdrafts during that time, you might still face some scrutiny. Underwriters will look at your bank statements from the past year to see if there are any overdrafts.

To help them with this, bank statements usually include a section summarizing your year-to-date overdraft fees. You can typically find this line in the monthly summary of your statement, which will show how many overdraft fees you’ve incurred so far this year. This section is important to underwriters when they assess your application.

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

What Lenders Look For

When mortgage lenders evaluate an application, they closely examine bank statements for overdrafts. Even a small overdraft can raise concerns about your ability to manage finances. Lenders typically expect to see a pattern of stability in your accounts, so if you have had overdrafts within the last 12 months, particularly in the last 60 days, it may impact your approval chances. Lenders are looking for a reliable financial history, as repeated overdrafts can signal potential risks.

Tips to Improve Your Approval Chances

1. Be Honest: If you’ve had an overdraft, consider explaining the situation in your application. Lenders appreciate transparency and understand that mistakes can happen.
2. Show Recent Improvement: If you can demonstrate a consistent positive balance in your bank account leading up to your application, it can help offset any previous overdrafts.
3. Remember, There Are Options: Don’t lose hope Even if you’ve had overdrafts. One or two instances are not necessarily disqualifying, especially if you can highlight your overall financial responsibility and recent stability.

Focusing on these tips will strengthen your application and boost your chances of being approved for a mortgage.

60 Days of Bank Printouts Versus Bank Statements

When applying for a loan, lenders usually ask for 60 days of bank statements to assess your financial history. However, if you had overdrafts in the past year but none in the last 60 days, you might be worried that your statements will show those overdrafts, particularly because of a year-to-date column that indicates any overdraft fees.

A lesser-known option is to use bank printouts instead of full statements. This is a completely legitimate and compliant strategy. Bank printouts don’t include the same detailed tracking of your overdraft fees, which means they won’t raise any red flags about your past overdrafts.

In simple terms, using printouts allows you to avoid disclosing information irrelevant to your current financial situation. Since you haven’t had any overdrafts in the past two months, the printouts focus only on your recent transactions, giving a clearer view of your current financial status without highlighting past issues.

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.

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

Q: Why do Mortgage Lenders Disapprove of Overdrafts in Bank Statements?

A: 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.

Q: Can I Still Get Mortgage Approval if I have Overdrafts in Bank Statements in the Past 12 Months? 

A: 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.

Q: What is the Significance of Providing a Letter of Explanation for Overdrafts in Bank Statements? 

A: 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.

Q: How do Overdrafts Occur in Bank Statements? 

A: 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.

Q: What is the Typical Process for Overdrafts in Bank Statements? 

A: 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.

Q: Are There Solutions for Addressing Overdrafts in Bank Statements When Applying for a Mortgage? 

A: 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.

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.

This blog about “How Underwriters View Overdrafts In Bank Statements” was updated on April 23rd, 2025.