Once you decide you want to get a home loan to buy the home of your dreams, there are a few documents that are always needed no matter what. These documents are your income documents, such as pay stubs, 2 forms of government issued ID (Driver’s license and social security card), and your asset documents.

Your asset documentation that lenders require can vary depending on the loan program.  You may only need just two most recent months of your main bank account for loans such as conventional or jumbo loans, or you may need 2 months of household bank statements for everyone over the age of 18 to qualify for a USDA loan. 

Your bank statements tell a lender a lot about you as a prospective borrower. And fortunately, or unfortunately, your bank statements can tell a mortgage lender whether or not your loan should be approved when you’re applying for a mortgage.

The underwriter can tell if you’ll be able to come up with closing costs, whether you’re an employed borrower or self employed, how much you’re paying to debts like credit cards,  and if you’ll be able to handle the mortgage loan’s monthly payments.

Additionally, there are chances that the mortgage rates approved for the loan may put the borrower on the bubble, where clean bank statements with funds for closing can be the difference between approval and a statement of denial.

Bank Statements Show Responsibility

Lenders look for red flag indicators that you may not be responsible with your money. One of the biggest indicators of this is if there are negative balances on your bank statement. These can be caused by either overdrafts or non-sufficient funds fees.

Overdrafts and non-sufficient funds fees are clear indicators that the borrower may have issues with their current debt, rent payments if they have any, or spending habits. The underwriter will ask for hand written or typed letters of explanation that explain exactly what happened and how the borrower will prevent future occurrences from happening in the future.

While the borrower has to explain to the underwriter that the overdrafts and/or non-sufficient funds will happen again, it’s very important that the borrower actually follows through. If there are additional overdrafts, even after a strategy was put into place, the underwriter may feel the borrower is too high of a risk.

Bank Statements Confirm Debt Payments

The underwriter will take note of recurring withdrawals and compare them to the debts listed upon submission of the application. If there are any recurring withdrawals that do not seem to match the information on your application, the underwriter will be sure to ask if these are associated with a debt or something like a child support payment.

There are times where borrowers have make a non-court-filed agreement with child support with an ex-partner. The underwriter will need to make sure that this amount is an agreed upon amount between the two parties, via a signed letter of explanation by both parties involved.

This letter would also need to indicate how long the child support will be going on for, as well. The underwriter may require the child’s birth certificate in question if a specific age of the child is given for the terms.

Bank Statements Confirm Income

Whether you’re a business owner and self employed, or are an employed borrower, the underwriter needs to understand and trace your income. The underwriter must also be able to source your income as well to make sure they are following anti-money laundering policies to protect themselves.

This means that every dollar that you put into your bank account that’s over a certain amount or is very frequent will need to be sourced. A good rule to follow is that if your deposit does not show as payroll or direct deposit, and is at least 1% of the loan amount, you’ll need to source and explain it to the underwriter.

Transfers are also required to be explained and sourced if the amounts transferred exceed a certain amount as well. For some mortgage programs, the existence of another bank account may trigger the lender asking the borrower to provide them.

An example of this is the USDA Loan program, which has an income limit and requires the bank accounts of every single person over the age of 18 in the household. If there are any transfers into a bank account, then the most recent 2 months of that new account will need to be supplied, including the statement that sources the transfers.