Your bank statements play an important role in getting a mortgage. Whether you need to prove that you have the funds to close on the loan or you need to prove that you have reserves on hand, your bank statements are an important part of the underwriting process.
So what can you do to make sure that underwriters approve your bank statements? Keep reading for the top tips to make sure your bank statements help you get approved.
Avoid Any Major Issues on Your Bank Statements
Underwriters aren’t assessing how you spend your money when they look at your bank statements, but they are looking for negative things like bounced checks or overdrawn accounts. Overdraft charges are a red flag. They let potential lenders know that you may not handle your finances very well.
If you have an overdraft, be ready to explain it. Of course, it’s best if you don’t have one at all, but if you do, write a Letter of Explanation. In this letter, thoroughly explain why you had an overdraft. Was it a one-time occurrence due to an issue with your paycheck or an emergency you experienced? The more details that you can provide the lender and the ability to prove that it was a single occurrence will increase your chances of approval.
Watch Your Large Deposits
You may think a large deposit is a good thing, but not in the eyes of the lender. A large deposit is actually a red flag. It signifies that you might have a loan out there that the lender doesn’t know about yet. If that’s the case, the lender has to underwriter your loan all over again, accounting for the large deposit.
Large deposits could also signify that you aren’t using your own money for the down payment. Many loan programs do allow you to use gift funds for your down payment, but you have to do it the right way. Just accepting money from a friend or relative doesn’t work. You have to track every step of the process from the moment you receive the money to the moment you deposit it in your bank account. The donor also needs to provide you with a gift letter and prove to the lender that the money is not a loan.
Have Proof of Your Income
Receiving your paycheck via direct deposit is the easiest way to document your income. Lenders don’t question regular, consistent deposits that match your pay stubs. They can easily tell where the income originated, which makes it easy to get your bank statements through underwriting.
If you need to use your bank statements to prove your income for a Bank Statement loan, though, you’ll have a little more work to do. Lenders will need to know beyond a reasonable doubt, which deposits are income and which are not income. Without direct deposit, you’ll have to provide proof of your paychecks so that the lender can see that the amount of the deposits match the money that you make.
If you have other deposits that don’t coincide with your income, you may have to explain them. It depends on the size of them. For example, a deposit of a few hundred dollars probably won’t make a difference, but a deposit of $5,000 would send up a red flag.
Have Your Money in One Account
Keeping all of your money for your down payment and closing costs in one account decreases the risk of a lender declining your loan. If you supply proof of more than one bank account, you open up Pandora’s Box, so to speak. You give lenders more to look at and more reasons to decline your loan.
Before you apply for a mortgage, try to consolidate your funds. If you have money in a savings account, for example, transfer it over to the checking account that you’ll use to cover the costs of the down payment and closing costs. It’s best if you do this at least two months before you apply for the mortgage, though. Funds that sit in a bank account for at least two months are considered seasoned. Lenders don’t question seasoned funds. If there was a loan tied to the large deposit, it would show up on your credit report within that time, so lenders assume that the money is good.
If you do transfer the funds over in less than two months before you apply for the loan, you’ll need to provide a paper trail of the transfer. It’s simple enough, though. Just provide a statement from your savings account showing the balance and the transfer of funds into your checking account. It’s a common situation, so it’s nothing to worry about.
Watch Your Payments
You don’t have to watch where you shop or how many times you go to Starbucks, but you do have to watch any regular payments to one person. Let’s say you borrowed $5,000 from your mom and dad and now you are steadily paying them back by paying them $200 a month. The fact that you borrowed money won’t kill your loan automatically, but the lender has to include the payment in your debt ratio. If your debt ratio is already close to the maximum, this could put you over the edge. It’s best if your bank statements don’t show any regular payments to anyone other than your creditors already on your credit report.
These simple tips should help you maximize your chances of getting your bank statements approved. Lenders typically ask to see the last two months of bank statements. The only exception to the rule is if you apply for a Bank Statement loan. In this case, you may need to provide 12 months of bank statements, which means you’ll need to be a little more careful for the year preceding your loan application.Click to See the Latest Mortgage Rates»