May 29, 2018

What Am I Reviewing On Your Bank Statements?

Christopher Ulrich

Vice President, Mortgage Lending

Whether you are purchasing or refinancing a home, we need to review bank statements. It’s important to know what we are looking for to prepare yourself for a smooth process.

In addition to assessing whether or not you’re able to regularly make your monthly mortgage payments, another role of mine is to make sure you have enough money for a down payment and closing costs. Part of how we do this is by reviewing your bank statements. However, we look a little deeper than just your account balance when approving or denying you for a home loan.

It’s important to make sure all your documents and records are sorted and straightforward before applying for a home loan.

Maintaining a “clean” bank statement

How many months

When applying for a loan, we will request two months bank statements. We will ask for all pages, including the junk pages. If your statement says “page 1 of 4”, then we will require all 4 of the pages. Online statements are acceptable but screenshots are not.

Multiple account holders

Is your bank account held jointly? Is there somebody listed on the account that is not on the loan you are applying for? If so, we’ll need a joint access letter from the other account holder stating that you (the person applying for the loan) has 100% access to all funds in the account.

Transfers from other accounts

The best thing you can do is limit the transfers. Any account you are transferring money from will have to be verified, especially if the transfers are large*. If you introduce another account, we’ll need two months of that statement. If you have large transfers into this new account, we’ll need to verify where those funds came from as well. The best thing you can do is limit the transfers over a 60 day period. *More on large deposits below.

Bank statement warning signs

Overdraft charges

Having a long list of overdraft charges in your account isn’t the best indicator that you’ll be a good borrower. No matter the circumstances, having a history of overdrafts or insufficient funds noted on your statement shows the lender that you might struggle at managing your finances. This isn’t always a deal breaker, but an underwriter may request a written explanation.

Large deposits

Another red flag to lenders is when a bank statement has irregular or lump-sum deposits. We need to make sure your funds are coming from an acceptable source. A large deposit is the sum of all deposits, not including payroll, which exceeds 50% of your gross monthly income. So if you earn $5,000/month, then the sum of your deposits must be less than $2,500, otherwise we’ll need to verify each of the deposits. Cash aka “mattress money” is not acceptable. Gifts and third party loans need to be explained, verified and documented appropriately. Unless you can provide acceptable documentation to paper-trail the large deposit, it’s likely we’ll disregard those funds, lowering your bank account total of acceptable funds for your down payment.

How to reduce bank statement scrutiny

Take extra care of your transactions for at least a few months before applying for a mortgage. Money that has been seasoned greater than two months will not show up in the account details of the statements we are verifying.

It’s best to start the process of organizing your bank activity and statements prior to applying for a loan. Start now. If that perfect home hits the market, you want to make sure your accounts are in order.

If you keep your bank statements top of mind in the initial search phases, you may have an easier time applying for a loan and ultimately securing it. Keep in mind that it’s best to maintain healthy finances throughout the closing process too. We will likely have to verify your earnest money deposit, so we may request additional bank statements prior to closing.

If you have any other questions, contact me here or at 708-531-8324.

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