When you are purchasing a home, you will need to provide your bank statements to your mortgage company as part of the application process. You may have a lot of questions about why you need to do this, what mortgage companies are interested in when reviewing your statements, and how you can be sure you are providing your lender with what you need for rapid and easy approval. In this post, we will answer these questions so you have a better understanding of the role bank statements play in the application process.
Why Does Your Mortgage Company Ask for Bank Statements?
There are a few reasons your lender may ask you to provide bank statements:
- You have no W-2. One common reason to provide bank statements to your lender during the application process is simply to verify your income if you are not able to do so using a W-2 form. This would be the case if you are self-employed.
- Your W-2 does not tell the full story. Another reason to show bank statements during the application process is to document income that does not show up on a W-2 form, even if you have one.
- Fraud prevention. Lenders look for suspicious transactions in your bank statements. They want to make sure you are using legitimate sources of funding to purchase a home.
- Checking your financial viability. Depending on the type of mortgage you are applying for, there may be strict rules about sources of funds for down payments. For example, you may not be able to use a loan to cover the down payment. Examining your transaction history in your bank statements gives lenders a chance to look out for issues like this.
- Closing costs. You will need enough money in your bank account to cover the down payment as well as the closing costs. By looking at your bank statements, lenders can verify if you have sufficient funds to complete the transaction.
Bank Statement Red Flags When Applying for a Home Loan
There are a few things lenders do not want to see when they check your bank statements. For example:
- Inexplicable rises and falls in income. It is not unusual if you are self-employed to have fluctuations in how much money you bring in from month to month. Nevertheless, you want to try to present a picture of financial stability. That means in some situations, you may need to cover a more extensive time period with your bank statements and offer a detailed explanation for your uneven income. You should put this explanation in writing and turn it in with the bank statements.
- Lack of an emergency fund. You should have enough liquidity in your assets to pay emergency repair bills, medical bills, and so forth without having to siphon money away from your monthly mortgage payments. If lenders do not see evidence of an emergency fund in your bank account, that is a cause for concern.
- You should not be overdrawing from your bank account for any reason if you are financially stable. Of course, sometimes overdrafts happen because of mistakes or carelessness. During the timeframe leading up to your loan application, try and avoid these incidents.
- Large, unexplained deposits. If there is a significant transfer into your bank account that is not part of your regular income, your lender is going to ask you about it. You will need to document the source of the deposit so they can confirm it is not a loan.
How Do You Provide Your Bank Statements During the Loan Process?
Obtaining your bank statements for the mortgage application process is as simple as logging into your online banking portal. Once you have signed in, there should be a section in your account that allows you to download bank statements. How many months of bank statements you need depends on your exact scenario. In the majority of cases, you just need two months. As mentioned previously, if you earn your income unevenly throughout the year, it may be more helpful to provide six months or more.
Before emailing statements to your lender, double check their file names. So that your lender can instantly identify them or find them again if they need to do so later, rename them to something both you and your lender will understand..
Learn More About Buying a Home With a Bank Statement Loan
If you have more questions about bank statements and the mortgage process, Martini Mortgage Group is here to answer them for you! We offer bank statement loans as an alternative to the traditional loan process. That way, self-employed borrowers can apply without a W-2. To get started now, please call us today at (919) 238-4934. We work with homebuyers and homeowners throughout North Carolina, Florida, Georgia, Illinois, Tennessee and Virginia.