Mortgage lenders see far beyond your account balance in your bank statements. Your financial documents show your spending patterns, income stability, and overall financial health to lenders at the time you apply for a home loan.
Most borrowers feel uneasy about sharing their detailed bank statements. However, knowing what lenders search for in these documents helps you prepare better for the application process. You will need to show your lender pay stubs, tax returns, and bank statements from the last few months. These records help them check your income, see how much you save, and look for any red flags that might make it harder for you to get a loan.
This in-depth article goes over what lenders want to see in your bank statements and how many months you need to show proof. Youll learn about specific items that might concern lenders during the underwriting process. Well also get into bank statement loans as an option for self-employed borrowers or those with non-traditional income. It’s easier to get a mortgage if you know how your bank statements affect your application. This is true whether you’re buying your first home, refinancing your current mortgage, or taking cash out of your home equity.
It can feel like your whole financial life is being watched when you get a mortgage. Lenders want to see everything, including your bank statements, your income, and your debts. And do those cash withdrawals really matter to mortgage lenders? Let’s look at what they really look for on your bank statements and find out if those cash withdrawals do matter.
The Truth About ATM Withdrawals and Mortgage Applications
The short answer is that mortgage lenders usually don’t care about withdrawals from bank statements, even if they happen at an ATM.
According to financial experts, there are no explanations needed for any withdrawals, whether they’re small cash withdrawals from an ATM or larger withdrawals. This might seem surprising, but it makes sense when you understand what lenders are really looking for.
Lenders are much more concerned with
- Where your money comes from (deposits)
- If you have enough for your down payment and closing costs
- Your overall financial stability
- Red flags that might indicate financial trouble
What Do Mortgage Lenders Actually Look at on Bank Statements?
When you apply for a mortgage lenders typically request the most recent two months of bank statements. Here’s what they’re really focusing on
1. Income Verification
They want to see proof of regular deposits that match the amount of money you said you made on your application. Paychecks or other sources of steady income prove you can pay back the loan.
2. Down Payment and Closing Cost Funds
Lenders want to know that you have enough cash for the down payment and closing costs. These funds must also be “sourced and seasoned,” which means they know where the money came from and that it has been in your account for at least 60 days.
3. Account Stability
A stable history without frequent overdrafts shows responsible financial management.
4. Risk Assessment
They evaluate whether your financial situation supports the loan amount you’re requesting.
The Real Red Flags Lenders Look For
While ATM withdrawals aren’t a concern, there are several red flags on bank statements that can hurt your mortgage application:
1. Overdrafts and NSF Fees
Multiple overdrafts or non-sufficient funds charges signal poor money management. Freddie Mac requires additional scrutiny when these fees appear, and for FHA loans, a human underwriter must manually re-approve your application if NSF fees are present.
2. Large, Undocumented Deposits
This is a major concern for lenders. Fannie Mae’s Selling Guide defines a large deposit as “a single deposit that exceeds 50% of the total monthly qualifying income for the loan.”
Why do lenders care? They need to ensure your down payment isn’t coming from an unacceptable source – like a loan from someone with an interest in the sale (such as the seller or real estate agent).
3. Regular Payments to Undisclosed Accounts
If your bank statements show regular withdrawals that don’t correspond with credit accounts listed on your mortgage application, lenders might suspect undisclosed debt. For example, if you got a personal loan that doesn’t appear on your credit report, the monthly withdrawals on your bank statement will alert the lender.
How Far Back Do Lenders Look at Bank Statements?
For most conventional mortgage loans, lenders typically request the most recent two months of bank statements. However, self-employed borrowers may need to provide between 12-24 months of statements if applying for a bank statement loan.
You’ll need to provide statements for any accounts holding funds you’ll use to qualify for the loan, including checking, savings, and money market accounts.
Tips for Preparing Your Bank Statements for a Mortgage Application
While ATM withdrawals aren’t a concern, here are some tips to avoid other potential issues:
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Review your statements before submitting them – Look for any potential red flags that might need explanation.
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Avoid overdrafts – Try to maintain positive balances in your accounts in the months leading up to your mortgage application.
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Document large deposits – If you have a legitimate large deposit (like a bonus or gift), make sure you have documentation ready to explain it.
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Be transparent about all accounts – Disclose all accounts that hold funds you’ll use to qualify for the loan.
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Keep your money in one place – Avoid moving money between accounts during the mortgage process, as this can complicate the paper trail.
Common Questions About Bank Statements and Mortgages
Do underwriters look at cash withdrawals?
No, bank deposits are what underwriters focus on, not withdrawals. Any small or large withdrawals don’t need to be explained.
Do mortgage lenders verify bank statements?
Yes, lenders will typically verify the authenticity of your bank statements by contacting your bank directly.
Can I spend money during the mortgage application process?
While you can spend money, it’s best to maintain stable account balances. Avoid large purchases that might deplete your funds for down payment, closing costs, or required cash reserves.
Do mortgage lenders check bank statements before closing?
Your loan officer typically won’t re-check your bank statements right before closing. However, as the closing date approaches, your lender will reconfirm aspects of your financial situation, such as your credit report, income, employment, and debt-to-income ratio.
Can a verification of deposit (VOD) replace bank statements?
Some lenders use a verification of deposit form instead of bank statements. However, lenders can still request statements if anything seems suspicious, and VODs show average account balances, which can reveal large recent deposits.
Final Thoughts
While mortgage lenders don’t care about your ATM withdrawals, they do care about your overall financial health and stability. The key to a smooth mortgage application process is maintaining good financial habits, being transparent about your finances, and understanding what lenders are really looking for.
Remember, lenders are primarily concerned with ensuring you can afford the down payment, closing costs, and future mortgage payments. By understanding what they’re looking for, you can present your finances in the best possible light and increase your chances of mortgage approval.
So go ahead and make those ATM withdrawals without worry – just make sure the rest of your financial picture is in good shape!
Why do mortgage lenders require bank statements?
Mortgage lenders use bank statements as a vital risk assessment tool when approving loans. Your financial documents paint a clear picture of your money management style. Lenders need this information to decide if they should trust you with hundreds of thousands of dollars.
Your statements prove you can afford mortgage payments. Lenders peruse your deposits and withdrawals to verify sufficient monthly income for proposed mortgage payments. They want to know if lending you money makes sense based on your actual cash flow.
Bank statements also reveal your available reserve funds. Lenders require you to maintain enough savings to cover at least two months of mortgage payments after paying your down payment, closing costs, and upfront fees. This financial buffer shows lenders you can handle unexpected expenses without defaulting on your loan.
Your financial records demonstrate your ability to cover closing costs. These fees range from 3-6% of your loan amountâyou might need $9,000-$18,000 for a $300,000 mortgage. Lenders must verify these substantial costs wont drain your finances.
More importantly, lenders verify that your assets are properly “sourced and seasoned.” This means:
â Sourced: They can track your moneys origin
â Seasoned: Your funds have stayed in your account for at least 60 days
This verification will give a clear picture that your down payment doesnt come from an undisclosed loan, which could affect your debt-to-income ratio and reduce your qualification amount.
Bank statements play an even bigger role for self-employed borrowers or freelancers. These documents help prove stable income despite monthly variations when regular paychecks arent available. Early reviews of mortgage rates and mortgage advice can help these people get ready for their bank statement loan applications to be looked over more closely.
The underwriting process uses bank statements to evaluate your likelihood of timely mortgage repayment. This evaluation determines your approval, loan amount, and interest rates.
What is a bank statement loan?
Bank statement loans give an alternative way to qualify, especially when you have self-employment, freelance work, or non-traditional income sources. Lenders look at 12-24 months of bank statements to check your income stability and financial habits instead of reviewing tax returns or pay stubs â although your credit score and other factors will still be taken into account.
This method works well because income verification can be tough without traditional W-2 employment. Freelancers and business owners often see their monthly income go up and down, so these loans focus on cash flow patterns rather than steady paychecks.
But these loans have stricter rules. Lenders must check that your deposits come from real income and not loans or gifts. They also look at how you spend money to ensure good financial management. You should check current mortgage rates before applying since bank statement loans usually require higher interest rates than regular mortgages.
Getting your documentation in order early will help your application process move faster.