Lenders look for these 11 items on your bank statements. If they find them, it may take longer to get approved or close on the home loan.
Checking, savings, and investment accounts are vital components of your mortgage approval.
Your lender will review bank statements to ensure you have enough money to close the loan. But a dollar amount isn’t all they look for.
Here are 11 items that can cause mortgage delays or even put your loan approval at risk.
1. Large Unverified Deposits
Lenders do not investigate all large deposits. Regular pay from your employer, IRS tax return deposits, or child support payments probably won’t need further documentation. But certain other large deposits will.
For conventional loans, you need to prove the source of deposits exceeding 50% of the monthly qualification income. For example, if you and your spouse make $8,000 per month before taxes, a deposit of $3,000 would not need to be sourced, but a $4,500 deposit would.
Rules for FHA, VA, and USDA loans may be different, so check with your lender.
If a deposit can’t be sourced, the lender may reduce your qualified assets by the deposit amount. Remaining funds must cover your down payment and closing costs.
2. Less Than 60 Days of History
Most types of mortgages require you to provide 60 days of banking history. In the majority of cases, your last two bank statements will suffice.
However, since most banks issue statements monthly (some generate them every quarter), two statements may not encompass a full 60 days if you’re applying for a mortgage early in the year, around February.
In this case, submit your bank statements for the past 3 months to avoid delays.
3. Outdated Bank Statements
Fannie Mae requires that bank statements be no more than 45 days old at the time of application. In addition, you will need new statements if they expire during the mortgage process. Supply the most recent statements available and be prepared to submit newer documents if your lender requests them.
4. NSF Charges
One or two non-sufficient funds (NSF) charges in the past few months won’t derail your mortgage approval. But regular, ongoing NSFs could cause the underwriter to doubt your ability to keep up with mortgage payments.
NSFs may require a letter of explanation, especially for borrowers with poor credit or other weak aspects of their file.
5. Missing Pages
A mortgage underwriter’s pet peeve is missing bank statement pages. Some banks always include a blank page at the end; be sure not to omit it. The underwriter needs this to make sure you’re not hiding anything.
Look at the bottom of your statement. If it says, for example, “page 1 of 10,” include all 10, even if some are blank or otherwise may not seem important.
6. Incomplete Bank History Printouts
Bank account history printouts are convenient but usually lack important information like your name, address, and account numbers. The lender needs the actual statement. Banks typically offer official PDFs you can download from your online account.
7. Unknown Addresses
You must state your current address when submitting an application for a mortgage. Your lender will verify that this matches the address on your bank statements.
An unknown address on your bank statements will require an explanation, as this could be an indicator of mortgage fraud.
8. Unknown Account Owners
You are allowed to be a joint account holder with someone who is not on the loan. However, the lender may require an explanation if you are a co-owner of an account with an unknown and unrelated individual.
Some borrowers add themselves to a relative’s bank statements because they don’t have enough in their own account. This is typically not necessary. You can cover your entire down payment and closing costs using gift funds in most cases.
9. Unexplained Payments To Individuals and Companies
Payments or regular withdrawals that don’t match up to any debt on your credit report may indicate you have undisclosed debts. The underwriter must include all debt payments when calculating your debt-to-income ratio.
Expect to explain regular withdrawals that appear to be payments. Some examples are child support, alimony, or a private loan payment.
10. Insufficient Funds to Close the Mortgage
You must have enough verified funds in your accounts to close the mortgage, including down payment, closing costs, and, in some cases, reserve funds. This total can be found in the “Calculating Cash to Close” section of your loan estimate and Closing Disclosure.
If your asset requirement is $12,000, but you can only verify $11,500, the lender will not issue final documents or allow the loan to close.
11. High Balances Not Proportionate to Your Salary
An unexplained large balance in a checking, savings, or investment account will be questioned if it seems unrealistic for your salary.
For example, someone making $5,000 per month is unlikely to have $250,000 in a checking account.
The lender will question such large balances even if there are no large deposits within the last two months. Such a balance could indicate an undisclosed loan, illegal activity, or mortgage fraud.
FAQs About Bank Statements for Mortgage Lenders
Here are answers to some of the most frequently asked questions about submitting bank statements to mortgage lenders.
How Many Bank Statements Do I Need for a Mortgage?
In most cases, you’ll need to submit your two most current bank statements. However, since mortgage lenders typically require a full 60 days of history, you may need to submit an extra month if you’re applying around February. Additionally, you may be asked for more current statements throughout the mortgage underwriting process.
What Red Flags Do Lenders Look for on Bank Statements?
Lenders look for a variety of red flags when evaluating bank statements to ensure applicants are properly qualified for a loan. Some of the most common issues that underwriters look for include large unverified deposits, NSF charges, missing or incomplete documents, unexplained payments, and abnormally large balances.
Do Underwriters Look at Spending Habits When Applying for a Mortgage?
Underwriters don’t care about normal spending, such as your daily morning coffee or video streaming subscriptions. However, they will keep an eye out for any unexplained regular payments or withdrawals, as these may indicate undisclosed debt that could affect your debt-to-income ratio.
Don’t Hide Questionable Items on Your Bank Statements
If you have unexplained items on your bank statements, don’t try to hide them from your lender.
Be upfront about the issues and get guidance on how to explain and document them appropriately. With a little planning, imperfect bank statements won’t derail your mortgage goals.
