Lenders need bank statements to make sure you can afford the loan. They need to know if you have enough money for the down payment and closing costs and sometimes even reserves.
If a lender asks to see your bank statements, what do they look for and what don’t they want to see?
Check out our guide below to find out.
What Lenders Look For in a Bank Statement
Most lenders ask for two months of bank statements. On these statements, they look at the balance to make sure you have enough money to qualify for the loan. But beyond that, they look at the following:
- Where did the funds come from? If they can’t source the deposit, they’ll ask questions.
- Do you have enough cash flow each month to cover the mortgage payments?
- Do you have ‘extra assets’ or reserves to cover your mortgage and other bills should something happen?
Lenders want to know beyond a reasonable doubt that any money in your bank account is yours and not borrowed from someone else. They also look for signs that you’ve recently opened other credit accounts (credit cards or personal loans for example) to get the funds.
What Lenders Don’t Want to see on a Bank Statement
Now you know what lenders want to see, but what don’t they want to see? In other words, what would make them turn a loan application down?
- Bounced checks – If you bounce checks, it’s a sign of irresponsibility. If you can’t manage your checkbook, you probably can’t manage a mortgage account. One or two bounced checks might slip through, but multiple bounced checks is a red flag.
- Large deposits – If a lender can’t source your down payment, they’ll wonder if it’s from an unacceptable source, such as another loan or borrowed from a friend. If the deposit exceeds 50 percent of your gross monthly income or seems ‘out of the norm’ the lender will ask for documentation proving its origination. If you can’t prove it, they may not approve the loan.
- Payments not found on your credit report – If there are regular outgoing payments that the lender can’t match with a trade line on your credit report, they will question it. You must provide proof of the reason for the payments and if they are for a loan (whether from an individual or bank), they’ll include it in your debt-to-income ratio, which could affect your approval.
Go over your bank statements before you apply for a mortgage. Look at the last 2 months, but sometimes even longer. Typically lenders ask for 60 days of bank statements unless they see something out of the ordinary, in which case they may ask for more.
The more straightforward your bank statements are, the more likely you are to get approved fast without any further documentation. If you know you have ‘questionable’ transactions on your bank statement, though, make sure you’re honest with your lender about it from the start.
