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If you’ve looked into applying for a home loan or refinance recently, you know that bank statements are one of the first documents your mortgage lender will ask for. What are mortgage lenders looking on bank statements and why does it matter?

What do Mortgage Lenders Look for on Bank Statements?

If you’ve looked into applying for a home loan or refinance recently, you know that bank statements are one of the first documents your mortgage lender will ask for. What are mortgage lenders looking on bank statements and why does it matter?

What do Mortgage Lenders Look for on Bank Statements?

In general, mortgage lenders look at bank statements to verify you have the funds to close, that your account activity is normal, and that you’ve had regular payroll deposits over the inquired period. They want to know that you have sufficient funds for the house you intend to purchase, and from where those funds derive.

Asking for bank statements is standard procedure for most home mortgage loans. You’ll typically be asked for 2 months of bank statements, but this may differ if you are self-employed.

Why do Mortgage Lenders Ask for Bank Statements?

The primary purpose for looking at bank statements during a mortgage loan process is to verify that you have a steady income, make sure you have the funds to be able to pay the down payment, and ensure there are no abnormal transactions (such as large deposits) that may impact the perception of your account balance and your ability to pay the loan.

Bank statements are used in the approval process for a mortgage loan. The content of the statements helps a mortgage lender to determine associated risks with offering you a mortgage loan and helps to determine your ability to repay that loan.

What are Red Flags on Bank Statements According to Mortgage Lenders?

Red flags are transactions or patterns of behavior that fall outside the norm. For instance, the lender will use your bank statements to look for:

Large Deposits

If you do receive a large deposit, the lender will want to see a clearly documented source to prove where it came from. This is a red flag because it may indicate that the down payment is coming from an unacceptable source. An unacceptable source may include taking a cash advance on your credit card or otherwise borrowing the cash for a down payment. If you have a large deposit in your account from a loan, make sure this loan is very clearly attributed and that you also have a record of the loan in your debits.

Overdrafts

Overdrafts are when you spend more money than is available in your account. This is called “overdrawing” your account. Records of having funds overdrawn in your account or writing checks that bounce are red flags to lenders since it can indicate that you may overestimate how much money you have, that you are prone to borrowing more money than you can afford to pay back, or that you have money management challenges. Mortgage lenders review your bank statement to ensure you’re a good candidate for a mortgage loan, but overdrawing your account suggests to the lender that you may not be a good loan candidate.

Regular Payroll Deposits

If you and your tax returns have indicated that you make a certain salary each month, your prospective mortgage lender will be looking to make sure your payroll deposits confirm your income. They want to see that you have enough money coming in to cover your mortgage and that your income is stead.

If your income has changed drastically within the bank statement period requested, your prospective mortgage lender will likely ask for an explanation.

If you are self-employed and applying for a mortgage loan, you will probably be asked for several months of your personal bank accounts as well as your business bank accounts, if you have one. The mortgage lender is looking for gross sales, net income, and a stable income year over year. They are also looking to ensure your income or income-related deposits match what you listed on your tax return. They also may ask you to provide invoices that correlate to check deposits in your personal or business banking account.

Monthly Payments to an Individual or Non-Disclosed Credit Account

A mortgage lender will also use your bank statements to look for monthly payments to an individual or non-disclosed credit account. Credit reports pull documented credit such as auto loans, student loans, or other debt accounts. But in some instances, you may have debts that do not record on credit statements, such as a loan to an individual.

Even though the debt may not record on a credit statement, it should still be taken into account in your debts. If not, the regular payments will alert the lender of a non-disclosed credit account and may discredit your mortgage process.

If you pay alimony and child support, make sure you have clear, current records showing whom you pay, how much, and how frequently.

How Many Bank Statements do Mortgage Lenders Ask For?

In general, a mortgage lender will ask for the past two months of bank statements. If you are self-employed, the lender may ask for additional months.

How Much Cash Reserves do Mortgage Lenders Look For?

One of the key reasons mortgage lenders look at your bank statements is to ensure you have enough money to cover the down payment and that you have at least two months of reserves to pay the mortgage payment after closing. They may also want to see that you can pay for closing costs without help.

What Does “Sourced and Seasoned” Mean?

You may have heard your mortgage lender state that the funds on your bank statement need to be sourced and seasoned. This means that you have clear records of where the money has come from (sourced) and that the funds have been in your account for a while (seasoned) and haven’t just recently appeared there.

Sourced and seasoned is an analysis that helps mortgage lenders help ensure they aren’t being manipulated by fraud or money laundering a well as ensuring you aren’t using a loan for your down payment.

Do Your Bank Statements Determine Whether You Qualify for a Mortgage Loan?

Bank statements are a key determinant in qualifying for a mortgage loan, but they are not a standalone factor. Mortgage lenders will also look at your credit score, credit report, existing debt, and any sources of income you use to qualify for the loan.

Talk to a Mortgage Specialist

Do you have additional questions about qualifying for a mortgage loan or would you like to get started with the application? Talk to one of our loan experts or start an application online today.