Why are overdrafts in bank statements scrutinized in mortgage underwriting process?

Bank statements are required for processing mortgage loan

Overdrafts

Overdrafts In Bank Statements

 

There are over a dozen documents that will be required for you, as a mortgage loan borrower, to submit when applying for a residential mortgage loan and one of those items will be bank statements.  Items like 2 years tax returns, 2 years tax returns, bankruptcy papers if applicable, child support paperwork if applicable, foreclosure papers if applicable, copy of rental agreement/lease, social security award letter if applicable, pension award statement if applicable, and verification of employment are pretty straight forward and are not scrutinized like bank statements are.   If you are planning on applying for a mortgage loan in the very near future, you need to be ready on how mortgage lenders scrutinize bank statements in their mortgage loan underwriting process.

Overdrafts in bank statements

Majority of mortgage lenders will not want to see any overdrafts from a borrower for at least 12 months preceeding the mortgage loan application.  Overdrafts in bank statements are viewed extremely negatively by mortgage loan underwriters and overdrafts can, and most often times are, causes for mortgage loan denials.  The amount of the overdraft in bank statements does not matter.  The overdraft in bank statements can be as little as $1 dollar or substantial overdrafts in the hundreds of dollars.  If you have a history of overdrafts, you need an experienced mortgage broker who can help you in putting your mortgage loan package together with a great letter of explanations.  There are ways of getting around and solving the overdraft problem.

What if you have multiple bank overdrafts in bank statements in the past 12 months?

If you have multiple bank overdrafts in bank statements in the past 12 months, talk to your mortgage loan originator and tell him your situation.  On case when a mortgage loan borrower comes to me for a mortgage loan and I see multiple overdrafts in bank statements in  the past 12 months, I normally do not turn in the bank statements.  I suggest for my client to go to their bank and get 60 days of print outs of their bank statements and get it signed, dated, and stamped by the bank teller.  Most mortgage lenders want to see 60 days of bank statements.  If you do not have overdrafts in the past 60 days but have had overdrafts in the past 12 months, your actual bank statements will reflect the year to date overdraft fees and this automatically sets up a red flag to the underwriter where he or she will be questioning the year to date overdraft fees which in turn you are required to provide additional bank statements.  However, if you only provide two months worth of print outs of your bank statements that is signed, dated, and stamped by the bank teller, the year to date overdraft fees are not posted on bank statement printouts.  This practice is not illegal because whatever the underwriter does not ask for, you do not have to provide and there is no question on the mortgage application where they ask you whether you had a bank overdraft in the past year.  However, once you provide your actual bank statements and the underwriter catches the overdraft fees on the bank statements, you cannot retract the bank statements the underwriter has and turn in bank statement print outs.  Once the underwriter has seen it, it is too late.  An experience mortgage broker will catch this during processing before it gets submitted to underwriting.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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