The process of getting a mortgage can feel personal and frustrating. This frustration is usually at its peak when the loan officer begins to request documents from you. Why do you have to provide bank statements when getting a mortgage? Let’s find out!
Why Your Loan Officer is Requesting Your Bank Statements
Your loan officer is requesting your bank statements because the lender, the underwriter, and the agency that sets the guidelines for your mortgage require it. When you are putting in an application for a mortgage, you have to back up each piece of your loan application with proof.
You must prove your credit history, your income, your monthly obligations, your residence history, and your assets. If you are purchasing a home you’ll have certain out-of-pocket costs when buying that home.
You are required to prove that you have the funds needed to close the loan. This includes your down payment, closing costs, and any reservers you might need in order to qualify.
There is standard documentation that is deemed acceptable when it comes to how you prove that you have the funds. These are typically full statements from your financial institution.
Whether you are using your checking, savings, 401k, CD, or any other type of account you’ll need to provide statements from the bank or financial institution as proof you have those funds.
What Your Mortgage Lender is Looking for On Your Bank Statements
When it comes to what your lender is looking for, it’s important to note were not here to judge your spending habits, or what you are spending your money on. The underwriter and your loan officer are looking for three primary things:
- No Non-Payroll Large Deposits: If you have direct deposits coming in from your employer that’s not a big deal. If you have other deposits such as cash, check, Venmo, or any other large deposits these items will be flagged and you’ll have to provide where the money came from.
- No Recurring Payments: While the lender is going to look at your credit report to ensure we account for all of your monthly debts, they will also look to your bank statements as well.
If you have additional expenses for auto loans or any other type of loan coming out that isn’t on your credit report, the lender will likely have to add that debt into your monthly obligations.
- Funds to Cover Your Out Of Pocket Costs: Once we’ve checked for large deposits and recurring payments leaving your account, we’ll need to make sure that you have sufficient funds to cover your costs.
Any accounts you use to show that you have funds to pay your closing costs will require the same level of documentation and review.
What Are Potential Red Flags?
The Bank Secrecy Act was enacted in 1970 and revised in 2001 with the US Patriot Act. Since those revisions, mortgage lenders must follow the same practices as banks when it comes to preventing and stopping money laundering.
While we hope that non of our clients would be involved in any money laundering schemes, we are required by law to verify all funds involved in a mortgage transaction.
In addition to these guidelines, banks also want to ensure that whoever they are lending money to will be likely to repay the loan.
This is why there is such a high level of scrutiny when it comes to your funds.
If you have:
- Large Cash Deposits
- Overdraft Fees
- Recurring Payments Not Previously Disclosed
These will also raise further investigation into your asset statements. Every large deposit, which can be as little as $500 or more, will need to be sourced and documented proving where the funds came from.
Excessive overdraft fees can signal to the lender that you have trouble meeting your current monthly obligation and can be used as a reason to decline your application.
If you have recurring monthly payments for the same amount each month, and it’s not listed on your credit report as one of your monthly liabilities, the lender is going to ask you to prove what it is.
This is why it’s so important to communicate openly with your loan officer as they should have the knowledge and expertise needed to help prepare you for what will be required of you.
What Counts as Proof of Assets?
So by now you know what is going to be requested from you, you need to know exactly how it should be provided so that it will be accepted by the underwriter.
Let’s first start off by discussing what types of documents are accepted by the lender and underwriter.
Bank or Financial Statements
The first and most common document we receive is the statements your financial institution sends you each month. These statements run from one month to the next and provide full detail of all of your incoming and outgoing transactions.
The most current two months of statements will be required by the lender 90% of the time.
The next type of document that is allowed is a full 60-day transaction history. Since your bank statements run from a specific date each month to the next, you may not yet have the statement you need to show you have all of the funds available.
This is where the transaction history comes into play. With the transaction history, you can pull up a specific date range that can show you balance as it is today.
It’s fairly easy to produce a transaction history if you utilize online banking that most banks provide.
Your transaction history must include one of two things:
- URL of the bank’s website on the bottom of the page
- Signed and stamped by a teller from your bank
The reason you must have one of these two things is to prove the authenticity of the document.
Verification of Deposit
A verification of deposit is a form that can be filled out by your bank that says what your current balance is, what your average balance is and what your balance over the last 90 or 120 days has been.
A VOD is not accepted on all transactions so it’s important to speak with your loan officer to determine if this type of documentation will be acceptable.
However, there is a new type of verification of deposit that is typically acceptable on most loans. Many lenders now have the ability to use an online deposit verification that will provide your balances, your transaction history, and all the other items required to verify your funds.
These services are usually the easiest way to provide your statements to your lender, and if you use online banking, you should be able to do it.
Other Items Required
Whichever document you choose to provide, they all must include the following:
- Full Account Number
- Your Legal Name
The statements cannot have:
- Any missing pages
- Information scratched or whited out
- Be altered in any way
Some common mistakes we see when clients upload bank statements are:
- Screenshots from the phone of their balance
- Excel files with their transaction histories
- Not including all pages, including the blank one
- Providing statements with insufficient funds
- No providing all statements needed
One important side note here:
If you make transfers from one account to another, you’ll need to provide statements from all accounts where transferred funds come from and go into.
How Many Months of Statements Are Required?
You are usually required to provide the most recent 60 days of bank statements when obtaining a mortgage. However, some conventional loan programs require only 30 days.
Your loan officer may only request your most current statement initially but you should be prepared to provide additional statements as needed.
Also if you are using something other than a checking or savings account, many of those statements run every 90 days. So you’ll need to provide one of those statements and you should also be prepared to provide a transaction history if you don’t have a recent statement within the last 30 days.
What If I’m Receiving a Gift?
If you are receiving gift funds to help with part or all of your upfront costs, the same documentation is required. However, we’ll need assets from not just you, but the person who is providing the gift.
This is the biggest sticking point we see when helping clients use gift funds. Many gift donors don’t feel it’s our business what they have in their accounts and they don’t want to provide us with statements.
We totally understand their need for privacy but in order to use the gift funds, we will need at minimum proof of the funds leaving their account and entering yours. Additionally, if you are using a loan like FHA, they require a full 30 days statement from the gift donor.
The gift donor and borrower will also be required to sign a letter stating the exact amount of the gift and that it is in fact a gift with no promise of repayment.
Can I Borrow Money For My Down Payment?
Technically it’s not prohibited to borrow money for your down payment, however, the money borrower must be secured by an asset. You cannot take out a payday loan, personal loan, or any other type of loan to use for your down payment.
In addition, if you do borrow money against an asset like a car, house, or anything else, you’ll likely be required to prove the value of what you borrowed against.
For this and other reasons, we generally recommend you don’t attempt to take out a loan to cover your costs because there is no guarantee the underwriter will approve it.
Can I Deposit Cash For My Down Payment Or Closing Costs?
Cash is not an acceptable source of funds when obtaining a mortgage. Cash can’t be traced and so it doesn’t meet the required documentation guidelines. Any money deposit into your account must have been seasoned for 60 to 90 days.
What If My Funds Are Coming From Retirement or Investment Accounts?
Many people will use their retirement or other investment accounts to provide for their closing costs and/or down payment. Using these accounts is similar to any other account. You’ll need to provide statements and proof of the funds in the account.
In cases of 401ks and retirement accounts, you also must provide Terms of Withdrawl which outlines any fees or penalties you’ll pay for withdrawing from those accounts.
Your Loan Officer is Here For You
While we definitely understand the frustration that comes with such a magnifying glass on your assets, please know your loan officer is on your team. Their job is to make sure your documents will be acceptable to an underwriter and that your loan gets approved.
What’s even more frustrating than providing private secure documents is having your loan denied or delayed, causing you to lose out on the home you love.