When applying for a mortgage, your mortgage lender will request numerous forms and financial documents.
One of the financial documents you will be required to submit is your bank statement. As you will find below, your bank statement is just as important as your pay stubs and your tax returns when applying for a mortgage.
What does your mortgage lender look for on your bank statements? What do the statements tell the lender about you?
Your bank statements paint a clear picture about whether or not you can pay your mortgage. Lenders typically request two months’ worth of statements for review. Expect lenders to scrutinize payments out of your account, as well as deposits into your account. Things that could be considered red flags are highlighted below.
Large or unusual deposits — Lenders will question all large deposits, other than payroll. If the funds are a “gift” from a family member, you’ll need to verify this gift for the lender to accept this on your statement. If you’re expecting a gift of funds, make that deposit at least two months prior to applying for a mortgage.
NSF (Non-Sufficient Funds) – A bank statement riddled with NSFs indicates to the lender that you’re incapable of handling your finances. If you do have NSFs on your statement, wait a couple of months to apply for your mortgage, and be careful to not bounce any additional checks. Can’t wait to apply? Prepare to explain the NSFs to your lender.
Unexplained/Unreported Payments – Along with your bank statement, your lender will pull your credit report. Lenders need to verify that money coming out of your back account is documented on your credit report. Payments not found on the report are considered non-disclosed, requiring an explanation.
While often a bit intimidating, applying for a mortgage can actually go much smoother if you are prepared.
Your lender will scrutinize your finances to make sure the money in your account is yours and to determine if you’re capable of making your mortgage payments. Take the time to go over your own financial statements and credit reports before applying for a mortgage. You also want to be sure to clean up any discrepancies and make your statements as transparent as possible.