Are you self-employed? Maybe you work as a freelancer for several clients. If you’re ready to apply for a mortgage, you might need to rely on a bank statement loan, a type of loan designed for homebuyers who don’t have jobs that pay a regular salary.
You’ll have to meet certain mortgage qualifications when you apply for a home loan. Your lender will check your three-digit credit score and verify your income to make sure that you can afford your monthly mortgage payment.
Mortgage lenders often require borrowers to provide them with copies of their W-2 statements from the last two years. That’s because this tax form lists the money employers pay workers, a key figure for lenders verifying that borrowers can afford their mortgage payments.
If you’re self-employed, though, you won’t receive one of these statements because you don’t have a full-time job that comes with a set salary. Because of that, you might need to apply for a different type of mortgage, a bank statement loan.
Getting approved for a mortgage requires providing detailed documentation about your finances to mortgage lenders. One key document you’ll need is bank statements, which offer a snapshot of your spending habits, account balances, and overall money management skills.
But how many months’ worth of bank statements do you actually need when applying for a home loan? Let’s take a closer look.
Why Mortgage Lenders Request Bank Statements
Mortgage lenders analyze your bank statements to verify that you have enough cash to cover the down payment, closing costs, and make the monthly mortgage payments.
Specifically underwriters want to see
- Enough money saved up for the down payment and closing costs
- The source of your down payment funds
- Sufficient income deposits and account balances to make the monthly mortgage payments
- Extra reserves or cash buffer in case of emergencies
Bank statements help lenders confirm your financial stability spending patterns, account balances over time, and the sources of large deposits. This allows them to evaluate if you can truly afford the mortgage loan you are requesting.
The Standard Timeframe: 2 Months of Statements
The typical timeframe mortgage lenders require is 2 months of your most recent bank statements. This standard covers all types of mortgage loans, including:
- Conventional loans
- FHA loans
- VA loans
- USDA loans
- Jumbo loans
You’ll need to provide statements for any accounts you plan to use for the down payment or monthly mortgage payments. That includes checking, savings, money market accounts, CDs, and other cash holdings.
Two months of statements provides a snapshot of your spending habits and account balances leading up to the loan application. It also aligns with the timeframe covered by your credit report which documents any new debts.
When More Than 2 Months May Be Needed
In certain scenarios, mortgage lenders may ask to see additional bank statements beyond the typical 2 months:
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Self-employed borrowers – If you are self-employed, the lender may request 12-24 months of statements to verify your income stability over time when tax returns are unavailable.
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Large deposits – If you received any recent large deposits, such as a gift or cash-out from another asset, the lender may ask for statements going back further to document the funds’ source.
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Previous red flags – If your statements contain red flags like overdraft fees or you need to explain irregular deposits, more statements may help strengthen your case.
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Specific lender requirements – Some lenders may require 3 months as their policy. It’s best to ask upfront what they specifically need to avoid delays.
So while 2 months is standard, be prepared to provide additional statements if your situation calls for more detailed financial verification.
Tips for Presenting Clean Bank Statements
When compiling your bank statements, keep these tips in mind to present your finances in the best light:
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Highlight key info – Use a highlighter to indicate important details like your recurring income deposits and down payment funds. This makes the lender’s job easier.
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Explain irregularities – Include written explanations for one-time large credits or cash transfers between your accounts. The lender will want to verify the source of funds.
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Omit unnecessary pages – No need to include blank pages or promotional material from your bank. Submit only account transaction pages.
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Gather all accounts – Compile statements from all accounts you will use, even if the lender hasn’t specifically requested that account yet.
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Check for errors – Review statements closely and have any errors corrected by your bank before submitting them. You don’t want mistakes or fees hurting your approval odds.
Presenting clean, easy-to-read bank statements demonstrates you are on top of your finances. With proper documentation, you can minimize headaches during the mortgage application process.
FAQs about Bank Statements for Mortgage Loans
How many months of bank statements do most mortgage lenders require?
The typical requirement is 2 months of statements. But certain loans or situations may require more, such as 12-24 months for self-employed borrowers.
What details do mortgage lenders look for in bank statements?
Lenders look for regular income deposits, high enough balances to cover the down payment and reserves, recurrent spending patterns, and sources of large deposits or credits.
Can I provide a bank verification of deposit instead of statements?
You can, but it doesn’t contain as much detailed information. Lenders may still request actual statements in addition to the deposit verification form.
Do I need to show all my bank accounts, even ones I won’t use for the mortgage?
No, you only need to provide statements for accounts that will contribute toward your down payment funds or monthly mortgage payments.
What if I have irregular transactions that need explaining?
Include a written explanation with your statements detailing any large, unusual deposits or withdrawals. Proper documentation can help avoid delays.
What if I’m self-employed? How many statements do I need?
Self-employed borrowers may need to provide 12-24 months of statements so the lender can assess income stability over time when tax returns are unavailable.
Can I submit bank statements electronically?
Yes, many lenders allow you to submit statements digitally through their online portal or via email. But check their requirements, as some may still want paper copies.
The Bottom Line
Providing the right amount of bank statements avoids headaches when applying for a mortgage. While 2 months is standard, be ready to submit more statements if needed to verify your finances.
Present neat, clearly labeled statements and explanations for anything out of the ordinary. With proper documentation, you can show mortgage lenders you are financially responsible and ready to be a homeowner.
How being self-employed or working as a freelancer affects applying for a mortgage
It can be more difficult for freelancers or self-employed people to convince lenders that they can afford monthly mortgage payments.
Lenders might worry about the consistency of the income earned by freelancers or self-employed workers. Because these workers don’t receive a set salary each month, their income can fluctuate. Lenders worry that if freelancers have a down month, they might not earn enough dollars to pay their upcoming mortgage payment. That makes self-employed and freelance workers riskier borrowers in the eyes of mortgage lenders.
Maybe you work as a wedding photographer. You might earn a lot of money during summer months when more people are getting married. But your income might drop during the winter when weddings are less common. Lenders want to make sure that you can still afford your mortgage payment during your business’ slower months.
To ease their concerns, lenders will study your bank account statements to make sure that your bank account has for the last 1 – 2 years had enough money in it to cover your new mortgage payment. They’ll also check your credit reports to make sure that you have a history of paying your bills on time. Lenders will pull your three-digit credit score, too, a number that shows how well you’ve handled credit and paid your bills over time.
FAQ about bank statement home loans
Have questions about how bank statement loans work? Here are some answers.