Can Overdraft Prevent Me From Getting a Mortgage?

Answer

When you write a check for more money than is now available in your checking account, this action results in an overdrawn account and an overdraft being created. Although some banks clients have overdraft protection on their checking accounts, the term “bounced check” is often used interchangeably with the term “deliberate overdraft.” Your ability to secure a mortgage might be affected if your bank statements indicate a consistent amount of overdrafts. This is especially true if the overdrafts are recurring issues.

Overdrafts and Mortgages

Your credit report will be obtained from at least one of the three main credit reporting agencies if you submit an application for a mortgage. Overdrafts on checking accounts do not immediately show up on a person’s credit record. On the other hand, if you don’t pay back your check overdrafts and they are sent to the collection department at your bank, the actions that the collection department takes against you might be reported to the credit agencies. Your credit score will suffer as a result, as will your ability to qualify for a mortgage, if there are negative entries on your credit report, such as collection actions taken against you.

Bank Statement Evidence

When applying for a mortgage, borrowers are always required to provide proof in the form of previous bank statements. Your most recent bank statements will reflect any overdrafts that have occurred. If you have a history of chronic overdrafts or require overdraft protection, this may be an indication that your income is inadequate or that you are unable to properly manage your finances. Your mortgage lender may decide not to approve your application after reviewing your banking history and any overdrafts you have had in the past.

Bank Overdraft Protection

When used appropriately, overdraft protection has the potential to be a useful service. However, overdraft protection accounts are more accurately referred to as lines of credit. Your credit report will include information on all of your credit lines, including any overdraft protection accounts you may have. For example, if you have overdraft protection for up to $10,000 you may have a $10,000 credit line. Mortgage lenders look at applicants’ lines of credit, and if you’ve used up a significant portion of your available credit, it might hinder your chances of getting a loan. In most cases, lenders like it when borrowers utilise no more than 30 percent or so of the total credit that is available to them. When you start using more than that, lenders may assume that your finances will become too stretched out for them to trust that you will be able to repay the mortgage payments.

Mortgages and Risk

Mortgage companies never provide loans without first having underwriters carefully examine the applications for such loans with a magnifying glass. A mortgage loan underwriter will evaluate the degree of potential risk that you provide to the lender based on the application that you submit for a mortgage loan. The danger of lending money increases when there is an overdraft at a bank, missed payments on credit cards, an excessive amount of debt, and insufficient income. Applicants for riskier mortgage loans are almost always required to pay higher interest rates, and they may even be refused entirely.