You have made the decision to buy a new home – congratulations!! One piece of the mortgage puzzle is to provide bank statements so your lender can verify the money you need for your down payment. So what does your lender look for?
Here are some red flags that could affect your loan approval:
- Bounced checks or NSFs (Non-Sufficient Funds charges)
- Large deposits without a clearly documented source
- Monthly payments to an individual or non-disclosed credit account
Underwriters will want to see two months of bank statements to document your money for closing. They look for large deposits as they could be a loan that may not have been disclosed. Any large deposit will need to be explained and documented. If it’s a gift, we need a gift letter and proof that it came from the gift donor – that also needs to be a family member. They will also look for NSF checks. NSF checks may mean you have difficulty in paying your bills and could affect your approval. If there are monthly payments to a person that is not a disclosed debt, it may affect your approval – underwriting will want to know what that payment is for. It could be child support or a loan that we are not aware of.
FHA loans can require a person with NSF checks to be manually underwritten and that can affect your loan approval. Manually underwritten loans usually have lower debt to income limits. It does depend on how many NSF checks you have – and are you using a overdraft line to protect yourself. Maybe you pull money from your savings account and it’s a regular habit, rather than just spending more money than you have.
Large deposits need to be documented. A large deposit is typically a single deposit that is over 50% of the monthly income according to Fannie Mae. Freddie Mac just wants large deposits documented. If you are using a program that has an income limit, you may need to document every deposit as the underwriter needs to know that there isn’t income that could affect the income limit of the program you are using. If you deposit cash, it may be backed out of your available money for closing. We can’t document cash – other than for those that earn tips but usually most of your tip income would be listed on a paystub. My suggestion for those that have cash at home is to use it for your regular purchases and do not deposit it. The other suggestion is if you have a large deposit that you can’t verify, you may want to wait until you can provide 60 days of bank statements (2 months) without a large deposit.
A regular payment to someone or a company that doesn’t show up on your credit report could affect your debt to income ratio. If you have a private loan that you are paying someone back for, it could show up on a bank statement. That debt will need to be used in qualifying and could affect your debt to income. Look at your bank statements and make sure there isn’t anything that could look like a loan payment. If you pay child support or alimony, make sure you tell your lender about it.
If you have multiple bank accounts, you may not need to provide all of them to your lender. However if you transfer between accounts, we will need to see all the accounts you transfer to and from.
If you have questions on your bank statements, talk to your loan officer. It’s better to be up front with your lender and make sure any questions are answered. Also your loan officer may not catch something that an underwriter will – and by then it may be too late. We want to help you with your loan, so it’s easier to ask questions and make sure there will not be any issues!
Leslie Vanderwerf, NMLS ID#335509, Everett Financial Inc, dba Supreme Lending, An Equal Housing Lender, NMLS#2129 – Email – Website