On bank statements, what do mortgage lenders check for?
Lenders examine your bank statements when you apply for a mortgage to ensure that you can afford the down payment, closing expenses, and future loan payments.
If your bank statements are free of any suspicious activity, you’ll have a lot better chance of getting accepted.
Mortgage lenders should be aware of the following red flags:
- NSFs (non-sufficient funds) or bounced checks (Non-Sufficient Funds charges)
- Large deposits with no well-documented origin
- Payments to an individual or a credit account that is not publicly disclosed on a monthly basis
Fortunately, you can resolve many problems before they become problems.
When it comes to bank statements, how far back do lenders go?
Along with your mortgage under approval, the borrower normally looks at 2 mos. of recent bank statements.
To qualify for the loan, you must furnish bank statements for any accounts that hold funds.
These bank statements are used by lenders to verify your savings and cash flow, look for unusual activity in your accounts, and ensure you haven’t taken on any new obligations.
The standard is two months’ worth of bank statements, as any credit accounts older than that should have appeared on your credit report.
Self-employed borrowers hoping to qualify based on bank statements rather than tax returns are an unusual exception. In this scenario, you need to go far back on bank statements from the last 12 to 24 months.
Is there a bank statement that can be scrutinized?
The one who approves mortgages and evaluates it must look on things regarding your bank statement:
- You’ve saved up enough money for the property purchase.
- The origin of your down payment, which must meet the lender’s requirements.
- Sufficient cash flow or savings to cover monthly mortgage payments
- “Reserves” are funds set aside for emergencies.
An underwriter will typically want to see proof that the funds in your bank accounts are yours and not borrowed (unless via a properly-documented down payment gift).
To put it another way, all cash utilized to qualify for a loan must be “sourced and seasoned.”
“Sourced” signifies that the money’s origins are apparent, and any unusual deposits are documented. And “seasoned” refers to money that has been in your account for at least 60 days. (As a result, the cash should appear on the two months’ bank statements you must supply.)
Bank statements also show underwriters that you haven’t started any new credit accounts or taken on additional debt since you applied for the loan.
Do they check bank statements before loan approval?
Lenders rarely review your bank statements again soon before closing. They’re only required when you’re applying for a job and going through the underwriting process.
However, your lender will double-check a few things before closing, including:
- Credit rating
- Report on credit
- Employment and earnings
Between mortgage approval and closing, you should avoid financing significant expenditures or opening new credit lines (such as a credit card).
New debts can negatively impact your credit score and debt-to-income ratio (DTI), as well as your loan approval and interest rate.
Furthermore, if your income or job situation changes prior to closing, notify your lender right away so that they can determine whether this would affect your loan approval and guide you through the process.
Things you don’t wanna see in a bank statement by your mortgage lenders
Before submitting your bank statements to the lender, you should examine them with the eyes of a mortgage underwriter.
This is because the lender is looking for red flags, which can necessitate long explanations if they are discovered.
When reviewing your bank statements, mortgage underwriters are taught to look for unusual sources of income, unreported debts, and financial mismanagement.
Several things to watch on bank statements that may indicate red flags from the Mortgage Company.
1. Checks that bounce
If you have multiple overdrafts or NSF (non-sufficient funds) charges on your checking account, underwriters are likely to conclude that you aren’t good with money.
When bank statements include NSF fees, Freddie Mac, the mortgage rule-making agency, advises that extra investigation is required.
Even if the borrower has already been authorized by a computerized system, FHA loans require lenders to manually re-approve borrowers with NSFs.
2. Undocumented and Large Deposits
Bank deposits that are unusually large or irregular may indicate that your down payment, required reserves, or closing costs are coming from a shady source.
It’s possible that the funds will have to be borrowed. Consider a credit card cash advance, which may not appear on your credit report.
An “illegal” gift could also be indicated by a large payment.. A home buyer cannot enlist the help of a party who stands to profit from the business process, such as the seller or realtor.
So, what does a mortgage lender consider a “big” bank deposit?
According to Fannie Mae’s Selling Guide, “when bank statements (usually covering the most recent two months) are used, the lender must analyze significant deposits, which are defined as a single deposit equal to or greater than 50% of the loan’s total monthly qualifying income.”
Freddie Mac also listed “recent substantial deposits without acceptable explanation” as a red signal that lenders should investigate further.
If you can’t show that the source of a large deposit is appropriate under the program’s rules through documentation, the lender will ignore the cash and use whatever is left to qualify you for the loan.
If the verified finances aren’t enough to get you a loan, you’ll have to save some more money from a reliable source.
Borrowing a down payment is, nevertheless, permitted. All you have to do now is reveal where the money for the down payment came from. This must be regarded as a “acceptable” source, such as:
- A family member or other relative’s giving of a down payment
- A down payment assistance program may provide funding for a down payment and/or closing costs.
If you recently received a large deposit from a source other than one of these, you should wait 60 days before applying for a mortgage.
At that point, the money becomes “seasoned,” which means it is now your money, regardless of where it came from.
Taking money from a party with a stake in the transaction is still a bad choice. This violates a slew of additional restrictions.
However, if a family member reimbursed you for a recent vacation or if you sold a car to your aunt but failed to document it, waiting 60 days may be an option.
3. Payments consistent, but activities aren’t
Keep an eye out for a monthly payment that doesn’t match the credit account you mentioned on your application.
Your credit report will often include information on your credit cards, auto loans, school loans, and other debt accounts. However, not all creditors report to the major credit bureaus.
If you took out a private, personal, or commercial loan from a person rather than a bank, the debt data might not appear on your credit report.
The $300 automatic payment on your bank statement, on the other hand, is likely to alert the lender to a credit account that hasn’t been declared.
A bank’s “VOD” (verification of deposit) won’t do good in every problem with your bank statement.
VODs, or Verifications of Deposit, are documents that lenders can use instead of bank statements. You sign a paper authorizing your bank to hand-complete the form, which includes the account owner’s name and current balance.
For years, VODs have been utilized to “get around” bank statement requirements. But don’t expect them to solve the problems described above.
If the lender senses potential difficulties, it can first seek an actual bank statement and ignore the VOD.
Second, depositories must provide the average balance of the account. This will most likely reveal recent significant deposits.
If the current balance is $10,000 and the two-month average balance is $2,000, there was most likely a large and recent deposit.
There’s also a section where the bank is urged to “provide any other information that may be helpful in determining creditworthiness.”
There is a possibility that your NSFs will be listed there.
There are more reasons to check and verify them before delivering the bank statements and an application to a lender. The thing here is you don’t want to appear honest, nor dishonest.
If there is any suspicion, they will not let it slide.
Mortgage bank statements: Frequently Asked Questions
Why mortgage lender requires bank statements?
Bank statements are required by mortgage lenders to ensure that you can afford the down payment, closing expenses, and monthly mortgage payment. Lenders check your bank statements to see how much money you’ve saved and where it came from. They want to see that the money is actually yours — or at the very least, money from a trustworthy source — and not a covert loan or gift that makes your financial status appear better than it i
For a mortgage, how many bank statements do I need?
Bank statements from the previous two months are usually required by mortgage lenders.
Is it applicable to list all your bank accounts?
If you have funds in a bank account that will be used to help you qualify for a mortgage, you must tell your mortgage lender about it. This includes any savings or regular cash flow account that will assist you in meeting your monthly mortgage payments.
What to check on your bank statements for an underwriter?
Underwriters examine your bank statements to ensure that you have the funds to satisfy your down payment and closing charges. Some loan types demand a few months’ worth of mortgage payments to be left in the account for “reserves,” or money set aside in case of an emergency.
Lending institutions also would like to see that all of the finances in your accounts have been “procured and sauced,” which means that the source of each deposit has been accepted and verified, and that the funds have been in the account long enough to demonstrate that they were not a last-minute loan or a doubtful deposit.
Do they consider your savings while getting a mortgage decision?
Yes, any depository accounts on your bank statements, including checking and savings, as well as any open lines of credit, will be examined by a mortgage lender.
Would there be an automatic refusal for an underwriter?
Underwriters may refuse a loan for a variety of reasons. Insufficient credit and a high debt-to-income ratio are the two most common. When it comes to bank statements, an underwriter may refuse a loan if the sources of funds cannot be verified or aren’t “acceptable,” leaving the borrower with insufficient verifiable cash to qualify.
Is there an average time for an underwriter to make a decision?
The time it takes a lender to complete the underwriting process varies. It could take as slow as 2 or 3 days for a lender to approve your mortgage loan, or as possible as a week. Non-bank mortgage lenders typically move at a slower pace than large banks.
Are you Home Loan Eligible?
When you apply for a mortgage, your bank statements are just one of several things that lenders consider.
Almost every aspect of your personal finances, including your credit score and report, previous obligations, and any source of income you’ll use to qualify for the loan, will be scrutinized.
These factors influence the amount of loan you’re eligible for as well as the interest rate you’ll pay. The more organized and checked the finances are the much better bargain you will likely get on a new house loan or refinance.