Many people have conflicting information about the effect of overdrafts on a mortgage application. Does a bounced check affect your mortgage approval? And the answer, infuriatingly, is "it depends."

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Mortgages are often underwritten electronically. And the software can't see your overdrafts. At least today, there is no provision for underwriters to enter the number of bounced checks into the DU Desktop Underwriter, which is Fannie Mae's electronic underwriting) or AUS (Automated Underwriting Software, which is FHA's), or LP (Freddie Mac's Loan Prospector). So if you can get an automated mortgage approval, you're in.

Additionally, I checked Fannie Mae's Allregs and FHA's Mortgage Credit Underwriting Guidelines and neither made any mention of overdrafts when discussing asset statements.

But humans can see your banking boo-boos. However, if your mortgage application does not pass muster with an automated system, or if you don't have enough credit history to generate an acceptable report (this is called a "thin file"), you'll be underwritten by a human. And the human could easily be prejudiced by a checking account statement littered with NSF (non-sufficient funds) charges. Ditto if you apply with a small local bank. These folks are known for "make sense" underwriting, for example stretching income guidelines for a self-employed person with lots of assets and excellent credit, but to them it may not "make sense" to approve someone who can't even balance a checking account.

So keep your nose clean. But if you don't it may not matter.