How do mortgage companies verify bank statements?

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How do mortgage companies verify bank statements

Taking out a mortgage is one of the biggest financial decisions you’ll ever make. To ensure that the process not only goes smoothly but that you successfully minimize the risk of default, lenders often request several financial documents before approving your loan. 

Some of the information that they require pertains to your bank account and your savings account. But just how do mortgage companies verify bank statements – and what do they hope to find there?

What is the bank statement verification process?

During the bank statement verification process, a lender analyzes the financial documents that summarize your banking activity. Your bank may send these electronically or by snail mail. The lender will verify information like your deposit history, regular withdrawals, and your current account balance. 

How do lenders verify bank statements?

Lenders verify bank statements in several ways. Some scrutinize your paper documents, while others accept electronic documentation. Often, once they have your statements in hand, the lender then contacts the bank to verify their validity. A few import income and asset information digitally, eliminating your role as the middleman. 

Why would I need a bank statement verified?

Mortgages are enormous financial commitments that involve taking on tons of debt at the risk of losing your home if you default. From the lender’s perspective, they potentially stand to lose money if you can’t make your monthly payments. Verifying your bank statements is one way they ensure you can repay what you borrow. 

Types of financial information that need verification

The bank statement verification process varies between lenders. But most require a few basic types of information, like:

  • Your account number and type
    • Checking
    • Savings 
    • CD 
  • Open and close date and status
  • Any authorized signers or joint owners
  • Your current balance and average balance history
  • Consistency in your deposits and withdrawals
  • No large, sudden deposits without a documented source

Why do mortgage companies need bank statements?

Lenders request bank statements to determine your eligibility for a loan or to satisfy the requirements of government-backed mortgages. To do so, they look for evidence of specific financial information. 

Cash available

Mortgage companies want to know that you have enough money saved to cover your down payment. Most lenders also require borrowers to have a few months’ worth of payments stashed in case you lose your job.  

Assets are sourced and seasoned

Lenders like to see that your assets are both sourced and seasoned. In other words, they want to know where your money comes from, which is the source, and they want to know that it’s been there for a while, making it seasoned. Sourcing and seasoning help prevent fraud and money laundering. It also ensures that you’re not using a third-party loan to cover your down payment costs.   

Closing costs

Lastly, your lender wants to ensure that you have enough liquid cash to cover your closing costs in addition to your down payment. Closing costs usually range from 2-5% of your loan’s total cost.  

What do mortgage lenders look for on bank statements?

Banks use a process called underwriting to verify your income and ensure you can afford your loan. But they also look for red flags that may indicate that you are a lending risk. 

Unstable income

If your bank statements show that you have a stable income, that indicates you can make your payments on time and in full. But if you have drastic fluctuations in your income – for instance, if you’re a freelancer or you quit jobs soon after starting them – they may question whether you can repay your debt.  

Low savings account balance

Lenders like to see that you have enough money in your savings account to cover emergencies like a job loss or sudden expenses. While the exact requirements may vary, lenders typically like to see anywhere from three to twelve months’ worth of expenses in reserve. 

A high savings balance suggests that you can make your mortgage payment if unexpected events arise. By contrast, a low balance suggests that you haven’t been diligent in your savings habits for one reason or another.   

Overdrafts

Most mortgage companies overlook the occasional overdraft. But frequent overdrafts signify that you often overestimate your balance or borrow more than you can afford.  

Large influx of cash

The point of a down payment is to build equity in your home and lower your monthly payments. But a large, sudden cash deposit may signal to lenders that you’ve taken out a loan for your down payment, defeating the purpose of making a down payment at all. 

That said, not all large deposits are bad news, as long as you have appropriate documentation. For instance, you may have received a raise, gotten a higher-paying job, or been gifted down payment funds by friends or family.  

How many months of bank statements for mortgage?

Typically, you’ll need to provide at least 2 months’ worth of bank statements for any accounts you want to use to help you qualify. If your bank sends quarterly reports, you’ll use that instead.

But if you have unusual financial circumstances, such as freelancing or spotty job history, you may have to provide up to a year’s worth of statements. The same may be true if you have lots of existing debt or apply for a jumbo loan.  

How do mortgage companies verify bank statements?

To answer this question, we would say that mortgage companies verify bank statements very carefully, with lots of attention to detail. Taking out a mortgage often feels like being put under a microscope. 

But if you’re in a solid financial situation and have a clean banking history, you probably don’t have anything to worry about. At the end of the day, the bank statement verification process is just a way for the mortgage company to protect their interests – and yours. 

FAQ

Do mortgage companies check bank statements?

Lenders do require that you provide bank statements for mortgage approval. They may also want to look at statements from other accounts, such as IRAs or CDs.

Do mortgage underwriters verify bank statements?

Mortgage lenders verify bank statements through underwriting, which looks at your finances to ensure you qualify for a loan.

How many bank statements do mortgage lenders need?

Most lenders require at least two months of bank statements. Some lenders may require up to six months or a year in some circumstances (such as for freelancers).

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