Buying a home is an exciting yet complex process involving many steps, from getting pre-approved to signing the final paperwork at closing. One important piece of this puzzle is providing your bank statements to the mortgage lender. But how closely do underwriters inspect these statements, and when? Will the underwriter take another look right before closing day?
As an aspiring homeowner, having clarity on what underwriters want to see in your bank statements can help the mortgage application go smoothly Read on for a comprehensive guide on why and how underwriters vet your bank statements during the home buying process
Why Underwriters Review Bank Statements
Underwriters play a pivotal role in the mortgage approval process. Their job is to thoroughly assess the borrower’s financial situation before the lender issues a home loan.
Scrutinizing bank statements allows underwriters to verify several key aspects:
-
Down payment funds – Statements show the savings history and source of funds for the down payment Underwriters check that sufficient funds are seasoned in your account
-
Closing cost funds – Statements provide evidence that you have cash to cover closing costs.
-
Reserves – Underwriters look for healthy reserves to cover mortgage payments if you face financial hardship.
-
Income stability – Regular payroll deposits confirm you have steady income to repay the mortgage.
-
Spending habits – Recurring expenses reflect how prudently you manage finances.
-
Fraud detection – Suspicious deposits or activities could indicate potential fraud requiring further review.
How Many Months of Statements Do Underwriters Need?
Most mortgage lenders require two months of recent bank statements during underwriting. Self-employed borrowers may need to provide 12-24 months of statements.
You’ll need to supply every account that contains funds you’ll use to qualify for the loan. This includes checking, savings, investment, and retirement accounts.
Some key aspects underwriters analyze:
-
Down payment funds – Statements should show the down payment sitting seasoned in your accounts for at least 60 days.
-
Income deposits – Underwriters look for regular payroll deposits matching your claimed income.
-
Cash reserves – Reserves equivalent to a few months’ mortgage payments provide financial stability.
-
Expenses – Recurring payments reflect debts and expenses reported on your application.
-
No red flags – Underwriters ensure there are no red flags like unexplained deposits or overdrafts.
Do Underwriters Re-Check Statements Before Closing?
In most cases, underwriters do not re-examine your bank statements right before closing. They vet the statements thoroughly during initial underwriting when you first apply for the mortgage.
However, as closing day approaches, the lender does re-confirm your financial standing. They verify critical details like your credit score, income, employment status, and debt-to-income ratio haven’t changed.
Significant changes could impact your loan approval. For instance, taking on new debts before closing might get your mortgage application denied. So inform your loan officer promptly about any changes to your finances.
What Underwriters Don’t Want to See on Bank Statements
While underwriters mainly look for signs of financial stability, they also watch for red flags that could jeopardize your mortgage approval. Here are three things underwriters don’t want to see on your bank statements:
1. Frequent Overdrafts
Multiple overdrafts or non-sufficient fund transactions point to poor money management. This rings alarm bells for underwriters and requires closer scrutiny.
To avoid delays, try to avoid overdrafts for at least a few months before applying for a mortgage. Maintain a buffer in checking to avoid overdrawing the account.
2. Large, Unexplained Deposits
Big deposits can also raise suspicions if you can’t explain where the money originated. Underwriters need to verify the sources of your funds.
Ideally, large deposits should show up on statements older than two months so they appear seasoned. Be ready to provide documentation explaining more recent large deposits.
3. Unreported Debts
Underwriters get concerned seeing unexplained recurring withdrawals that don’t match any debts you reported. This suggests you may have undisclosed liabilities.
Before applying, double check that all your debts and obligations appear on your application. Omitting material facts can jeopardize your approval down the line.
Alternatives Like Verification of Deposits
Some lenders accept alternatives like a Verification of Deposit (VOD) instead of bank statements. A VOD is a form completed by your bank verifying your account balance.
But be aware that VODs have limitations. They still indicate average balances and note red flags like overdrafts. Underwriters can still request actual statements for verification.
The safest bet is to review statements thoroughly and provide any explanations upfront. Relying on a VOD to conceal issues often backfires.
Tips for Smooth Sailing with Bank Statements
Preparing your bank statements for underwriting scrutiny takes awareness and planning. Here are some tips to avoid hiccups:
-
Review statements for red flags underwriters dislike
-
Explain large deposits with documentation
-
Consolidate funds needed for closing into one primary account
-
Avoid new debts before closing
-
Maintain a consistent buffer to prevent overdrafts
-
Inform loan officers promptly if your situation changes
Thorough preparation with bank statements establishes your reliability as a borrower and keeps the mortgage process on track. An experienced loan officer can also guide you on optimizing statements for underwriting success.
With some diligence, you can help underwriters gain the assurance they need to approve your home loan. Before you know it, you’ll be receiving the keys to your new home.
What do mortgage lenders look for on bank statements?
When you apply for a mortgage, lenders look at your bank statements to verify that you can afford the down payment, closing costs, and future mortgage payments. And the more straightforward your application file, the more likely you are to be approved. Even if unintentionally, you certainly don’t want to raise any red flags.
Read on to learn how you can avoid common underwriting pitfalls and optimize your chances of mortgage approval.
In this article (Skip to…)
Large, undocumented deposits
Outsized or irregular bank deposits might indicate that your down payment, required reserves, or closing costs are coming from an unacceptable source.
A large deposit could indicate an illegal gift. A home buyer can’t take help from a party who stands to gain from the transaction — like the home seller or real estate agent.
So, what’s a “large” bank deposit to mortgage lenders?
- Fannie Mae’s Selling Guide says, “When bank statements (typically covering the most recent two months) are used, the lender must evaluate large deposits, defined as a single deposit that exceeds 50% of the total monthly qualifying income for the loan.”
- Likewise, Freddie Mac lists “recent large deposits without acceptable explanation” as red flags about which lenders should follow up with the applicant
If you can’t prove through documentation that the source of a big deposit is acceptable under the loan program’s guidelines, the mortgage lender must disregard the funds and only use verifiable funds to qualify you for the home loan.
If the verified funds aren’t enough to qualify you for a loan, you’ll need to save another chunk of cash — from an acceptable source.
That said, you may borrow a down payment by most loan programs. You just have to disclose where the down payment money came from. This must be considered an “acceptable” source, such as:
- A down payment gift from a family member or other relation
- Down payment and/or closing cost funds from a down payment assistance program
If you received money from someone else, a mortgage lender requires a gift letter explaining the funds are freely given and not a loan.
If you did receive a large deposit recently — and it wasn’t from one of these sources — you may want to wait 60 days before applying for a mortgage.
At that point, the funds become “seasoned,” meaning they are now your funds, despite the source.
Obtaining funds from a party with interest in the transaction is not a good idea. That breaks a myriad of other rules.
But if your family member paid you back for a recent vacation, or you sold a car to your aunt and didn’t document it, waiting 60 days could be a solution.
Does the Underwriter Check your Credit before closing on a House?
FAQ
Does the underwriter ask for bank statements?
It depends on the underwriter. Some are satisfied by simply looking at the primary information on two months’ bank statements, while others may request proof of deposit. The most thorough underwriters may ask for statements and proof of deposit.
What do underwriters check before closing?
A mortgage underwriter who works for the lender then verifies your identity, checks your credit history and assesses your finances, including your income, …Feb 12, 2025
What do lenders check before closing?
What are red flags on bank statements for mortgages?
Red flags on a bank statement
Firstly excessive overdrafts or bounced payments can be major red flags. They show poor money management and can make most lenders question your ability to make monthly mortgage repayments throughout the mortgage term. Secondly, large unexplained cash deposits can be queried.
Will my loan officer check my bank statements before closing?
Your loan officer will typically not re-check your bank statements right before closing. Mortgage lenders only check those when you initially submit your loan application and begin the underwriting approval process. Verify your home buying eligibility. Start here
Why do lenders review bank statements before closing?
Lenders review bank statements before closing to assess your financial responsibility and ability to repay the mortgage. Bank statements play a crucial role, revealing your financial habits, income, and spending, impacting mortgage approval.
What do Mortgage underwriters look in bank statements?
What Do Mortgage Underwriters Look In Bank Statements is they require 60 days of bank statements. One of the reasons why mortgage underwriters require bank statements is to see if borrowers have sufficient funds for the down payment and closing costs on a home purchase. Things underwriters will look for are irregular deposits and overdrafts.
Why do Mortgage underwriters need bank statements?
One of the reasons why mortgage underwriters require bank statements is to see if borrowers have sufficient funds for the down payment and closing costs on a home purchase. Things underwriters will look for are irregular deposits and overdrafts. Any irregular deposits of $200 or higher need to be sourced.
Why do Lenders look at bank statements when applying for a mortgage?
When you apply for a mortgage, lenders look at your bank statements to verify that you can afford the down payment, closing costs, and future mortgage payments. And the more straightforward your application file, the more likely you are to be approved. Even if unintentionally, you certainly don’t want to raise any red flags.
How many bank statements does a mortgage underwriter need?
For borrowers applying for a mortgage loan application, one of the most important things an underwriter will require is 60 days of bank statements. Two months of bank statements are required. Mortgage Underwriter will closely analyze borrowers’ funds in a bank.