One of the more complicated aspects of buying a home is the submitting and sourcing of deposits for bank statements. For this part of the first time home buyer guide, we decided to explain a bit more about bank statements, what you’ll need, and why you’ll need them.
We’ll also go into more of the things you should avoid, if possible, before and during your home buying process!
- 1 Minute | No Hard Credit Check
First Things First: Bank Statements Are Always Required
Bank Statements are always required unless you’re paying cash for your home. The main reasons why mortgage lenders wish to see your bank statements are to see if you have the cash for closing and confirm your income.
Both your current bank balance and income are both looked at closely when you submit them to the underwriter. Your bank balance confirms a few things for the lender: Whether or not you have the cash for closing and your spending habits. If there are a lot of overdrafts, for example, this may draw concern for the lender.
The lender requires specific information to be on your bank statements. The financial institution’s name or logo, your name, a proper running balance with dates, and all pages of each statement. Sometimes the last page of a bank statement is blank, however, the underwriter can’t assume that your statement has ended and will need that last page.
Large Deposits and Income
As mentioned before, your bank statements also show your income flow, which the underwriter will be comparing with your other income documents. If you have any discrepancies, the underwriter may ask for a letter of explanation, depending on the loan program.
For example, if you have your income listed as $30,000 a year, but your pay stubs are showing much less, the underwriter may ask for an explanation. This discrepancy can be due to things like child support garnishments being taken out of the check, which is information that the underwriter needs to know.
Overdrafts and Insufficient Funds Fees (NSFs)
Both of these items must be avoided at all costs if possible, especially when trying to buy a house through a mortgage lender. Even if the overdrafts in your checking accounts are covered by your savings accounts, each one of these overdrafts will need a letter of explanation written by you.
Insufficient Funds Fees, also known as NSFs fees, are a bit different than overdrafts but they are kind of the same. It all depends on how your bank handles approving the distribution of funds you do not have. For example, if your bank approves a purchase totaling more than your current balance, you’ll be hit with an overdraft fee. Your balance will remain in the negative until you add more money to cover the difference and the overdraft fee.
Insufficient funds fees are similar to overdrafts, but are also a little bit different. If you try to make a purchase (most likely not purchases made with your debit card) your financial institution may temporarily “approve” the transaction. However, once the bank realizes that your current balance doesn’t cover the amount, it’ll cancel the transaction, and hit you with an insufficient funds fee. This can happen for items like utility bills or car payments that you may have auto-pay set up for.
- 1 Minute | No Hard Credit Check
