Bank statements

what do loan underwriters look for

If you are applying for a mortgage loan, one of the things your mortgage lender will request is bank statements.  60 days of bank statements is required.  One of the reasons why mortgage lenders require bank statements is to see if you have sufficient funds for the down payment and closing costs on your home purchase.  Things that mortgage loan underwriters will look for are irregular deposits and overdrafts.  Any irregular deposits of $200 or higher needs to be sourced.  By sourced, you need to provide where the irregular deposit came from.  You can have cash deposits, however, cash deposits cannot be used and will not count towards funds that can be used towards your closing costs and your down payment.  For example, if you need $5,000 as a down payment and your bank account reflects a balance of $5,000 but that $5,000 was a recent cash deposit, that $5,000 balance cannot be used as verified funds for your down payment.  However, if you deposited $5,000 from a sale of a vehicle and can provide a copy of the check as well as a bill of sale and title to the vehicle you have sold, that particular $5,000 deposit is considered sourced funds and can be used towards verifying your down payment.  Cash is non-existent in the mortgage business.  In order for irregular deposits to be used as sourced funds, you need a paper trail.

Gift funds

Gift funds from a relative or family member is allowed for FHA loans.  A home buyer can get 100% gifted funds from a family member and/or relative for both the down payment and  closing costs for their home purchase.  However, the gift funds needs to be sourced.  Mortgage lenders will require the copy of the canceled check from the donor.  The donor needs to provide 30 days of bank statements and show the funds leaving the donor’s bank account and the deposit of the recepient’s bank account in order for the gift funds to be valid.  a gift letter needs to be signed and dated by the donor stating that the gift funds is not a loan and there will not be a repayment.

What if I have cash that I want to use towards my down payment on a home purchase?

Many folks have cash in a safe deposit box at a bank

or cash at home because they do not trust banks.  Unfortunately, cash is non-existent in the mortgage business and cannot be used for down payment and/or closing costs.  If you have cash, often called mattress money, you need to deposit the cash in your bank account and let it season for two months.  Mortgage lenders will require two months of bank statements so any cash deposits made prior to the two months will not be questioned and the mortgage lender will not have access to it.  If you are planning on buying a home in the near future and you have unsourced funds, I recommend that you deposit the funds into your bank account as soon as possible so you can let it season.

Overdrafts in bank statements

Overdrafts in bank statements will definitely kill your mortgage loan approval.  One overdrafts as little as $5 dollars is frowned upon by mortgage lenders.  They consider those who overdraft their bank accounts as financially irresponsible.  Mortgage lenders do not want to see any overdrafts in the past 12 months.  Mortgage lenders will only require two months of bank statements, however, if you supply the actual bank statements, there will be a column with year-to-date overdraft fees.  This will alert the mortgage loan underwriter that you had an overdraft in the past 12 months which could potentially kill your mortgage loan approval.  If you have had an overdraft in the past 12 months, do not submit the actual bank statements.  I would go to your bank and get two months of printouts of your bank statements.  Mortgage lenders accept bank statement printouts that has been signed, stamped and dated by the bank teller in lieu of actual bank statements.  With bank statement printouts, the year-to-date overdraft column does not exist so as long as you do not have any overdrafts in the past 60 days bank statements, you will be safe.

Overdraft protection is strongly recommended.  Unfortunately, most banks will not offer overdraft protection for their depository clients unless they have credit scores higher than 680 FICO.  Check with your bank and see if you can have overdraft protection.

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Category: Credit

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