Why do mortgage lenders need your bank statements?
Minneapolis St Paul, MN: When taking out the largest loan most people will ever have in their life, a home loan, your Mortgage Loan Officer is going to ask a lot of questions, and request a lot of supporting documents, like pay stubs, W2’s, tax returns, and your recent bank statements.
Providing all this documentation really should be pretty easy for most people, yet it also causes a lot of frustration. Most people don’t get pay checks handed to them anymore, just as many people don’t get banks statements mailed to the home either. So here starts some of the annoyance issues right away for some people, while others quickly and easily access the documents online.
Your lender wants actual pay stubs, and actual bank statements, like what would be mailed to the home. Many people send simple screen shots, which simply doesn’t work. Most online accounts let you print real statements and real pay stubs, you just need to look around to find them.
Generally, most mortgage loan programs only require your two most recent bank statements. We also need ALL the statements pages too. If the statement says “Page 1 of 3”, and the last page is just advertising, we still need it.
Underwriters are also looking for lots of other things in your bank statements too, including:
When the mortgage company looks at your bank statements, the most obvious thing they are looking for is do you have the money in the bank to cover your down payment and closing costs, also known as ‘cash-to-close.” Do you have it all today? What is your average balances?
If your last two months bank statements show $500 balances, but you need $10,000 for down payment, where is it coming from?
Any large, obviously non-payroll deposit needs to be documented. What is it, where did it come from? Is is a loan that needs to be paid back? Is it a gift? Is it your tax refund?
Large deposits is one of the biggest headaches for both the lender and the applicant, and depending on the answer, can be no big deal, require a little bit of paperwork to prove where it came from, or can actually be a deal killer.
A common problem is many people have large sums of cash at home, then deposit in the bank. As weird as it sound, that cash deposit is NOT an acceptable source of money for your down payment, and needs to be in the bank account at least 60-days before it can be considered usable money for your down payment.
So what is a large deposit?
Most lenders consider a large deposit any non-payroll deposit that is more than 50% of a applicant(s) monthly income for conventional loans, and more that 1% of the purchase price of the home for an FHA loan.
Yes, we care if you are bouncing checks. It shows how you manage money.
Let’s say your current rent is $1,000 a month, and you consistently bounce checks. Your potential new house payment is $1,400 a month. You can’t manage your account with rent at $1,000 a month, how are you going to be able to handle a $400 increase in your housing costs?
On the loan application, you are supposed to disclose all recurring debt. The reality is mortgage lenders generally just merge in the debt showing on your credit report. But a sharp eyed Underwriter may catch something on the bank statement and ask a question.
What DON”T we care about?
We don’t care about ATM withdrawals at the casino, and we don’t care about your purchase at the liquor store or Victoria’s Secret. We pretty much don’t care anything about your purchases.
Busy Bank Statements
Busy bank statements is my personal term for people who transfer around money from their various multiple accounts on a regular basis. This can lead to a lot of headaches in documentation. I just had a client, where on her bank statement, there was a large deposit. When I asked her where it came from, she said her savings account. Great, now send me the savings account statement. Once I saw the savings account, there was a large deposit there too. She said that deposit was from a 401k loan. OK, prove that too.
While she was able to prove and document everything, she also became very annoyed. I understand, but those are the rules. So if you know you will be buying a home in the next few months, it may be easier to put all the money in one account now to avoid any potential issues with Underwriting.