So, you’ve finally found your dream home. It’s got the perfect kitchen, a backyard that screams summer BBQs, and maybe even a bonus room you’ll tell yourself is for “working out” but will actually be a storage space for unopened Amazon packages. Now, all that stands between you and those house keys? A mountain of paperwork … including bank statement verification.
Mortgage lenders don’t just take your word for it when you say, “I totally have enough money for this.” They want proof of income for a mortgage, bank statements for a mortgage, and reassurance that you’re not running a secret offshore gambling ring. So, exactly how do mortgage companies verify bank statements? Here’s a breakdown of how they verify your finances and what red flags could make lenders hit the brakes.
How Do Mortgage Lenders Verify Bank Statements?
Getting a mortgage to purchase or refinance a home is an exciting yet stressful process. As a homebuyer, you have to submit a mountain of paperwork to prove you are financially qualified and able to repay the mortgage. One key document mortgage lenders will thoroughly scrutinize is your bank statements.
But why do lenders need to verify your bank statements? And what exactly are they looking for when they comb through your transaction history? I’ll explain the bank statement verification process so you know what to expect
Why Lenders Verify Bank Statements
Mortgage lenders verify bank statements for a few important reasons:
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To confirm you have enough cash to cover the down payment and closing costs. Lenders want to ensure you won’t drain all your funds to barely scrape together enough for the purchase.
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To verify the source of your down payment and asset funds. Lenders need to make sure the money is really yours, and not a secret loan or gift from an unacceptable source.
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To check you have steady income and cash flow to afford the monthly mortgage payments. Lenders look for regular payroll deposits.
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To assess your spending habits and financial stability. Frequent overdrafts or large unexplained transfers can raise red flags.
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To detect any fraudulent activity or inconsistencies that could indicate financial risk.
How Far Back Do Lenders Look?
Most lenders will ask to see two months of recent bank statements when you apply for a mortgage loan. If you’re self-employed, they may request 12-24 months of statements to verify your income.
Lenders typically only need bank statements going back two months because any older accounts should already appear on your credit report, which lenders also review.
What Lenders Look For on Bank Statements
When underwriting your mortgage application, here are some key things lenders look for on your bank statements:
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Enough funds to cover your down payment and closing costs. Your balances can’t be drained to $0.
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Acceptable and documented sources for any large or unusual deposits. Gifts must be disclosed.
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Steady stream of income deposits from payroll, benefits, etc. to show you can routinely make mortgage payments.
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Minimum 2-3 months’ worth of mortgage payments kept in reserves.
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Recurring spending and bills to assess your budget and expenses. Is there room for a mortgage payment?
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Frequent overdrafts or non-sufficient fund fees may signal poor money management.
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Automatic transfers to individuals or accounts not listed on your application could indicate undisclosed debts.
Red Flags That Can Delay Approval
Lenders want to avoid seeing these red flags on your bank statements:
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Numerous overdrafts and bounced checks
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Large, unexplained deposits from questionable sources
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Monthly automatic payments to undisclosed recipients
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Inconsistencies between income deposits and claimed earnings
Any red flags will require you to provide additional explanations and documentation, which can delay mortgage approval.
The Verification Process
There are a few ways lenders can verify your bank account information:
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Request bank statements directly from you to manually review
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Contact your bank to complete a verification of deposit (VOD) form
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Use third-party bank statement verification services to electronically confirm details
Lenders may use one or multiple methods to double-check your financial credentials. The more straightforward your bank activity, the faster the verification process.
Tips for Smooth Sailing
To optimize your chances of a quick, hassle-free mortgage approval, do the following before applying:
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Avoid large non-payroll deposits unless from disclosed sources like gifts
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Keep spending steady and balance transfers minimal
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Eliminate overdrafts and maintain a positive balance
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Keep 2-3 months’ mortgage payments in reserves
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Don’t open new credit accounts or accumulate new debts
With clean and consistent bank statements, you can breeze through verification and get approved faster. Just be sure there are no questionable transactions that could prompt greater scrutiny from your lender.
The Takeaway
Mortgage lenders closely analyze your bank statements to verify you can truly afford the home loan. While handing over your transaction history for review may feel invasive, it’s a necessary step to get approved. As long as your bank statements are straightforward and stable, the verification process shouldn’t cause any hiccups on your path to homeownership.
Applying for a Mortgage? Keep Your Bank Statements in Check
At the end of the day, mortgage companies verify bank statements for a mortgage to make sure you’re financially prepared for homeownership. If you have steady income, a decent savings balance, and no suspicious financial activity, you’re likely in good shape.
The best way to avoid last-minute surprises? Maintain stable finances, avoid red flags on bank statements, and keep those splurges in check.
How far back do mortgage lenders look at bank statements?
Usually, lenders review two to three months of bank statements, though some may request up to six months, especially if you’re self-employed or have irregular income.
How Do Mortgage Lenders Check and Verify Bank Statements?
FAQ
How do mortgage lenders check bank statements?
To verify the information you’ve provided, your mortgage lender might contact your bank by phone. More commonly, though, they will complete proof or verification of deposit (POD/VOD) request forms and ask your bank to verify your account this way.
Do banks verify bank statements for mortgages?
Mortgage lenders rely on thorough bank statement verification to assess borrower risks accurately and prevent fraud. Learn how do lenders verify bank statements with both manual and automated methods and how automation simplifies the process, reduce errors, and enhances efficiency.
How does a bank verify a bank statement for a loan?
Lenders verify bank statements by cross-referencing with other documents. They may also contact the bank for confirmation. Many lenders are adopting automated tools for verification.
What looks bad on bank statements for a mortgage?
Your bank statements reveal your regular spending habits and how you manage your finances. Lenders look for red flags like frequent overdrafts, returned payments, or insufficient funds charges, which indicate financial stress or poor money management. 3. Existing liabilities and recurring payments.