Why Do Mortgage Lenders Want to See Bank Statements?

by William Pirraglia

Bank statements are important components of processing a mortgage application. First, lenders must verify all of your assets. Cash is a vital asset. If you're buying a home, lenders must have confidence that you have sufficient cash to make the required down payment and closing costs. Even if you have a large bank balance, mortgage lenders want to verify that you didn't generate it from new borrowing that could negatively affect qualifying for the home loan.

Sufficient Cash

Having sufficient cash to meet down-payment needs and reserve requirements, if any, are important. Your lender may request three months to one years' worth bank statements. This will display your regular cash flow and spending habits, both of which affect your ability to manage mortgage payments. Bank statements also further verify your regular income and periodic payments made to your creditors each month.

Unverified Deposits

Mortgage lenders become nervous about seeing unusual or unverified deposits. Loan officers will ask about the source of these deposits, should it be obvious they didn't come from your regular earnings from employment. Lender concerns involve questions about whether you've borrowed funds that don't yet show up on your credit report. With most mortgage programs, borrowed funds are not permitted for down payments, although gifts from family members usually are.

Cash Reserves

All mortgage lenders feel more secure if you can show some cash in reserve. Some mortgage programs even require applicants to show one or two estimated monthly payments in reserve to qualify for approval. Good savings or spending habits, along with money management ability, are seldom listed as qualification rules. However, mortgage loan officers and underwriters consider these characteristics when deciding to approve or reject a mortgage application.

Other Cash Statements

Your lender may also want your retirement and investment account statements, along with your bank statements, to assemble your complete financial picture. If an immediate family member -- mother, father, sister or brother -- contributes money to help with your down payment needs, some lenders may ask for a few month's bank statements from your contributing family member to verify the source of those funds. Advise your family member of the possibility of this lender request before you apply.

Beware New Loans

Should your bank statements show an unexplained influx of cash, particularly in the form of a large one-time deposit, be prepared to explain the money source to your lender. Mortgage lenders become quite concerned about new loans that could reduce your ability to make monthly home loan payments on time. If you receive money from a family member, prepare a "gift letter," signed by the parent or sibling who gave you the money. Should you get a loan from any source, prepare a reasonable explanation for your lender.

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