How Do Mortgage Underwriters View Bank Overdrafts

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This article delves into how mortgage underwriters view bank overdrafts and their implications for mortgage approval. Every financial aspect of a borrower’s life is scrutinized meticulously in mortgage lending. From credit scores to debt-to-income ratios, lenders aim to the risk associated with approving a mortgage loan. Bank overdrafts are often overlooked but significant aspects of a borrower’s financial history.

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What are Bank Overdrafts?

Before delving into their impact on mortgage underwriting, let’s understand what bank overdrafts entail.

An overdraft occurs when an individual withdraws more money from their bank account than is available, resulting in a negative balance.

This can happen through ATM withdrawals, checks, electronic payments, or any other transaction that exceeds the available funds in the account. While some banks may offer overdraft protection, allowing transactions to go through despite insufficient funds, it often comes with hefty fees.

Bank Overdrafts Are Not Deal Killers

Gustan Cho Associates will accept bank overdrafts with a good letter of explanation by the borrower. However, many lenders will automatically disqualify borrowers with any overdrafts in the past 12 months:

The way How Do Mortgage Underwriters View Bank Overdrafts is that most underwriters will deny a borrower if they have any overdrafts
An experienced loan officer will realize on How Do Mortgage Underwriters View Bank Overdrafts and will not submit any bank statements with any bank overdrafts
One of the main reasons for mortgage denials is due to bank overdrafts
Due to How Do Mortgage Underwriters View Bank Overdrafts, any bank statements with overdrafts should not be submitted to processing
Once a mortgage underwriter sees any paperwork submitted by borrowers, it is too late
The underwriter cannot unsee it

How much money can a mortgage underwriter overdraft?

Mortgage underwriters do not have the authority to overdraft accounts. Their responsibility entails evaluating mortgage applications and gauging the risk inherent in authorizing a loan based on the borrower’s financial situation, creditworthiness, and ability to repay the loan.

Over drafting accounts is a banking function and is typically subject to the terms and conditions set by the financial institution where the account is held.

Banks may have specific overdraft policies and limits, including maximum overdraft amounts and associated fees. These limits can vary depending on the account type, the bank’s policies, and the individual circumstances of the account holder.

Can I submit a bank statement with an overdraft?

Submitting a bank statement with an overdraft is generally acceptable. Still, it depends on the specific purpose for which you’re submitting the statement. Here are a few scenarios:

Loan or Credit Application: Lenders often request bank statements to assess your financial stability and repayment capacity when applying for a loan or credit. In this case, having an overdraft may not necessarily be a negative factor. Still, it could indicate that you’re regularly spending more than what’s available in your account. Lenders might scrutinize your overdraft usage and consider it in their decision-making process.
Proof of Funds: If you’re using the bank statement as proof of funds for immigration purposes or visa applications, having an overdraft might raise questions about your financial stability. Immigration authorities may want to ensure you have sufficient funds to support yourself without relying on credit.
Rental Application: Landlords or property managers may request bank statements as part of a rental application process to verify your income and financial stability. Having an overdraft may not be a significant concern in this case. Still, it’s essential to provide accurate information about your financial situation.

When submitting a bank statement with an overdraft, it’s crucial to be transparent about your financial circumstances. Suppose there’s a reasonable explanation for the overdraft, such as temporary cash flow issues or an emergency expense. In that case, you can communicate that to the relevant party. However, consistently relying on overdraft protection may indicate financial mismanagement, which could negatively impact your application or approval process. Click here to get information about approval for your application process

Documents Required To Process Mortgage Loan

There are over a dozen documents that will be required for mortgage borrowers to submit when applying for a residential mortgage loan. One of those items will be 60 days of bank statements. Other documents required are the following:

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
Verification of employment
Other documents which are pretty straight forward and are not scrutinized like bank statements are

Borrowers planning on applying for a mortgage loan in the very near future need to be ready on How Do Mortgage Underwriters View Bank Overdrafts during the mortgage loan underwriting process.

Overdrafts In Bank Statements

The majority of mortgage lenders will not want to see any overdrafts from a borrower for at least 12 months preceding the mortgage loan application.

Overdrafts in bank statements are viewed extremely negatively by mortgage underwriters
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 one dollar
Borrowers who have a history of overdrafts need an experienced loan officer who can help on how to structure the bank statements prior to submission
There are ways of getting around and solving the overdraft problem