For part 2 of the Bank Statement series, we’ll actually be going over what mortgage lenders may request of you and why. Other than just being sure you can cover closing costs, or have properly saved for a down payment on the home, the underwriter wants to make sure you can make your mortgage payments.
- 1 Minute | No Hard Credit Check
Underwriters Require The Most Recent 2 Months Of Bank Statements
For all of your bank statements, you must submit the most recent two months. Depending on the loan program, this may just need to be your personal bank statements or bank statements of everyone in your household. For example, if you are applying for a USDA loan, this has income restrictions and requires income and assets of everyone above 18 in your household.
When you submit your bank statements, there is a possibility that the underwriter will need you to write a letter of explanation and source your large deposits. Large deposits have different defining values depending on the loan program used. For USDA and FHA, the general rule of what counts as a large deposit is a non-payroll deposit of more than 1 percent of the purchase price or appraised value of the home, whichever is lower. For Conventional, Jumbo and VA loans, large deposits are defined as non-payroll deposits that are more than 50% of your monthly qualifying income.
However, mortgage lenders may have their own rules and whether or not they ask for large deposits lower than 1 percent is up to their discretion. Lenders may also ask you to write letters explaining any very frequently deposited amounts into your account that aren’t labeled as payroll. You’ll also be required to source these deposits.
How To Source Some Common Deposits
Providing supporting documents can be daunting at first, but we want to try and ease your anxiety at least a bit during this stressful time of the home buying process. If you do not have direct deposit, then you will need to provide copies of your paychecks to source deposits into your bank account.
When you submit your bank statements, we recommend gathering each individual check copy, and taking note of the following information: date of deposit and amount of deposit. When you write your letter of explanation, use both the date of deposit and the amount of the check so you give the underwriter as much information as possible. For example:
On Jul 20th, I deposited a check for the amount of $621.21. This check was my payroll check from my job.
This gives the underwriter all the information that they are looking for. Keep in mind that each letter of explanation may have multiple deposits on it and explanations, which is fine. However, you will need to sign and date each letter of explanation in pen. This is to show the underwriter that you are verifying this information and that it is accurate to the best of your knowledge.
Another Common Deposit: Non-Payroll, One-Time-Only Deposits
Another common deposit we see is depositing a check for a one time errand, like helping a neighbor move in to their new home, for example. These deposits are different because they may just be one deposit. If you decided to help a neighbor for a fee and the underwriter is looking for an explanation and source of this deposit, you can provide the following:
On Jul 18th, I helped my neighbor Joe move into his new home. He paid me $200, in which I deposited into my account on Jul 19th. This is a one-time deposit.
This explanation has a bit more information than the previous one. Now, you’re letting the underwriter know specifically that this deposit will not be recurring, and you don’t secretly have your own moving business! In some occasions, if the deposit is very large, like maybe $3000, the underwriter may ask for more supporting documentation.
You may be required to write up a brief contract between you and your neighbor, Joe, explaining exactly what you helped with and how much you were paid. This letter will need to be signed in pen and dated by both you and Joe. This will effectively be treated as a “contract” for work done, and can be used along with the copy of the check to source your deposit. Remember, that this contract will need to state that this is a one time payment.
- 1 Minute | No Hard Credit Check
What If You Are Unable To Source The Deposits?
If you have cash deposits without any possible sources, depending on how much cash you have to bring to closing, this can hurt your chances on getting approved. For example, let’s say that the underwriter requires you to show $5,000 in funds for closing in your most recent bank statement, and you happen to be $3000 short. If you break open your piggy bank at home and deposit the remaining $3000 into your account as cash, the underwriter will not count this amount as funds available for closing.
If a borrower cannot source these funds, and has no other means of receiving a sourced deposit, this may cause the mortgage lender to deny the borrower. Unfortunately, due to anti money laundering laws, an underwriter cannot approve of funds that have no obvious source.
