What Do Mortgage Lenders Look for on Bank Statements?

When it comes time for some mortgage applications, your bank statements become one of the most analyzed documents of your application. As a Charleston, SC, mortgage broker, we recognize on a daily basis just how these financial pictures can be the deciding factor in whether or not your loan application gets approved.

Your bank statements reveal a lot about your spending patterns, reliability, and capability of managing mortgage payments. Most clients ask, what do mortgage lenders look for on bank statements? Lenders generally require two or three bank statements, providing them sufficient information about your spending patterns and risk assessment. Let us find out more about what piques their interest! 

Income Verification

Bank statements are one of the most primary methods used by loan providers to verify your reported income on your application. Some borrowers wonder, do mortgage lenders look at bank statements? The answer is yes – there have been many instances that depict a disparity between an individual’s reported income and actual bank statement details based on their monthly deposits, as seen on their employment verification letter or pay stub. So, lenders can review these documents.

But for self-employed borrowers, bank statements become more essential than before. They need to have consistent business funds that reflect their steady income generation. Otherwise, irregular or periodic funding may create problems of doubtful income, thereby hampering loan approval or resulting in unfavorable loan conditions.

Source of Funds

It is common for large deposits to be followed by other scrutiny on the part of the underwriters. Any payment that is more than 25% of your monthly income would need explanation and documentation. Gift funds, bonus payments, or sales of assets may all need documentation.

Our advice is that clients should refrain from conducting large cash payments during the mortgage application and legal completion of the mortgage, as these payments are most difficult to verify or trace. Essentially, banks have to verify that funds received have a legal source, as required by money laundering laws.

Calculation of Debt-to-Income Ratio

Your bank statements reflect your actual spending habits, and these habits are used by the lender to calculate your debt-to-income ratio more effectively. All your automatic payments for credit cards, education loans, car loan payments, and other debts are reflected in your bank statements.

In some instances, we’ve had clients who forgot about some of their monthly payments that are not reflected on their credit report. Things such as online subscriptions, saving plans, and loan payments made may impact your mortgage payment income sources.

Red Flags That Raise Concerns

There are several indicators that could reveal instability on the part of the borrower. Overdraft charges and NSF fees are indicators of inefficient money management. Multiple overdrafts on a statement cycle can be highly detrimental to your loan application.

Regular transfers of funds between accounts, and more especially just before applying for a loan, may raise eyebrows. What a potential lender would like to see is that funds are held continuously and not regularly shuffled about, possibly just for appearance’s sake. Also, any transactions involving gambling may be questioned regarding responsible handling of funds.

Irregular spending habits or sudden changes to spending patterns during the mortgage application process may raise more questions. Finances that remain consistent help lenders become more confident about your ability to repay mortgage payments on time. Working with the best bank statement mortgage lenders and brokers can help you navigate these challenges successfully.

Preparing for Success

Keeping your bank statement records clean and tidy during the mortgage application is essential, and we would advise that large cash deposits be avoided, and any irregular transactions be documented prior to these becoming potential problems. Where a down payment is received as a gift, this should be documented from the outset.

Bank statements are essential documents that offer lenders valuable information concerning your financial stability and responsibility. It is essential that you are informed about what they require, and this will help you prepare, and as a result, have a better application submitted for mortgage approval. Talk to our team at BrickWood Mortgage today for further advice!