Do Lenders Check Bank Statements Before Closing? (2024)

Do Lenders Check Bank Statements Before Closing?

Yes, they do.

One of the final and most important steps toward closing on your new home mortgage is to produce bank statements showing enough money in your account to cover your down payment, closing costs, and reserves if required.

When you’re buying a new home and approaching the finish line, emotions are high and timing is tight.

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This is NOT the time to find out that your loan officer did not properly explain how important your bank statements will be at the closing table.

I received a question from one of our readers last week. Reading deeper into the question, there’s much more here than meets the eye.

The Question

I am closing on a home in November. I know my bank account has to show the amount for closing. Does it have to show at least one mortgage payment amount also?

Thanks,
Rhonda

What Do Underwriters Look For in Bank Statements

Many people wonder what mortgage lenders look for in the bank statements they request.

Generally, they are looking for unusual deposits, sources of funds and reserves. I’ll explain each of them below.

Simply having money in your bank when you’re at the closing table is not enough. The underwriter will review your bank statements, look for unusual deposits, and see how long the money has been in there.

The industry term for this underwriting guideline is the “Source and Seasoning” of your funds being used to close. Before the lender fund the loan, the underwriter will have to sign off on your bank statements.

How Many Months of Bank Statements Do Mortgage Lenders Require?

Lenders typically request two months of statements for each of your bank, brokerage, and investment accounts in order to qualify for a mortgage.

Deposits made into your accounts prior to the most recent two months’ asset statements are considered seasoned and generally do not have to be provided in order to qualify for a mortgage. The seasoning requirement for most lenders is typically statements covering the most recent 60 days prior to closing.

They’re looking for where the cash came from, to determine whether you have received a gift or some other factor that will make you look good at that point in time but won’t be available in the future to help you make your required mortgage payments.

The source of your funds is not necessarily where the funds are transferred from a savings account into a checking account, but they will look for more verification that the funds have been in your account, and can be documented on the most recent two months’ statements.

Closing Costs and Reserves

When calculating how much you need in your account at closing, you should consider both closing costs plus any reserves required by the loan program you are using to buy your home.

Closing costs and reserves differ in that closing costs must be spent, and reserves only need to be saved, documented, and accessible in an emergency.

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Understanding Closing Costs

Closing costs need to be wired from your bank account to the closing table, whether it be an Attorney, or Escrow Company, depending on what area of the country you’re buying in.

Closing costs may include, but are not limited to:

• Closing service fees (escrow or attorney fees)
• Title search fees
• Recording fees
• Transfer taxes
• Lender fees
• Pre-paid interest
• Pre-paid impounds (taxes and hazard insurance)
• Pre-paid HOA fees (homeowners association)

Understanding Reserves

Reserves only need to be verified and are not required to be withdrawn. Reserves are liquid funds that you could have access to if you had to.

Reserves are typically measured inmonths of reserves in terms of having a determined number of months of PITI (principal, interest, taxes, insurance) in savings, and available for withdrawal.

Reserves are most common with low credit score FHA loans or FHA loans for tri-plex and four-plex properties, and most Conventional, Jumbo, and Portfolio Loans.

FHA and VA typically will not disqualify you through the automated underwriting system if you do not have reserves, but if you have trouble getting an automated underwriting approval, having reserves can offset risk as a compensating factor.

Common sources of reserves may include, but are not limited to:

• Checking or savings account
• Cash value of life insurance (if withdrawal is allowed)
• 401k or other retirement accounts (if withdrawal is allowed)
• Cash value of stocks, bonds, or other liquid assets

Reserves can be tricky because they can vary greatly from one loan program to another, and are also a common “overlay” added to the underwriting guidelines by a lender.

It is not uncommon for a lender to consider reserves as a compensating factor that may allow them to accept higher risk areas of your application, like low credit scores or high debt to income ratios.

It is also not uncommon for a lender to simply impose reserve requirements to filter out loans that they perceive to be of higher risk of future default.

Using Gift Funds?

Most loan types allow you to use gift funds for closing costs and/or reserves. Gift funds can almost always be accepted by a close family member like a mother, father, sister, or brother.

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The best way to accept gift funds is to have the donor wire the funds directly to the closing table. Most underwriters will ask for statements from the donor to verify that they had the money available to gift.

The gift-giver must also sign a Gift Letter stating their relationship to you (the buyer), the amount of the gift, and the understanding that the money is a gift, and is not expected to be paid back.

Gift funds are seasoned the same as the closing cost and reserve documentation requirements, which is typically statements covering the most recent 60 days prior to closing.

NOTE: Gift funds deposited into your account prior to the most recent two months’ account statements are considered seasoned funds and do not have to be sourced.

Frequently Asked Questions

Is It OK To Move Money From Savings To Checking Before Closing?

Generally, moving money from savings into checking, so you can have the cash available to write a check to close on your house, is not considered a problem. Your lender may wish to see a few additional months of statements on your savings account to verify the source of that money prior to the move.

How Many Bank Statements Will Be Required For Mortgage Approval?

Most lenders will request 2 months of statements for each of your bank, retirement, and investment accounts, though they may request more months if they have questions.

Why Do Lenders Need Bank Statements?

One of the things a lender looks for before approving a loan is your overall financial situation and reserves. They’re looking to see how much money you would have available to be able to make your mortgage payment in case of hard times like losing your job, being unable to work due to injury or sickness, etc. without having to sell assets. Reviewing all your bank, retirement, and investment account statements enables them to see how large of a reserve you have on hand.

They are also looking for “sources of funds” wanting to make sure that deposits into your accounts can be reasonably explained. Basically, they are checking to see if you have received gifts of money that make your finances look better than they actually are in the long term.

Should I be worried about underwriting?

Generally, no. As long as you’ve been honest in filling out your mortgage loan application, you have good credit, you don’t have a lot of outstanding loans, and you haven’t received gifts to fund your downpayment, the underwriting process is not that difficult.

That said, your mortgage lender will request a number of pieces of documentation as part of their review of your application. Among other things, they will routinely ask for (don’t worry, they ask these of everyone who applies for a mortgage loan:

• 2 months of statements from each of your bank accounts, investment accounts, and brokerage accounts
• Your most recent pay stubs
• A year or two of your tax returns, including your W-2 forms
• Explanation and proof of sources of income if you have any self-employment or gig income

What Does An Underwriter Look For?

The primary things an underwriter is looking for when you apply for a mortgage loan are your:

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• Income level and consistency of income
• Your debts and monthly expenses
• Whether you have sufficient cash to pay for your down payment and closing costs
• Whether you have reserves sufficient to pay several months of mortgage payments in case you lose your income
• Your credit history
• The source of any major deposits into your accounts to ensure that you haven’t received gifts to fund your down payment

What bank statements are required for a mortgage?

A mortgage lender will request at least two months of bank statements for:

• Your checking account(s)
• Your savings account(s)
• Your investment account(s)
• Your retirement (401(k)) account(s), IRA’s, 403(b) account(s) etc.
• Your brokerage account(s)
• Your credit card statements
• Your loan statements

What is a large deposit letter of explanation?

If your mortgage lender sees a large deposit in your accounts, they may ask for a large deposit letter of explanation. Don’t panic, this is normal. They will usually explain what they’re looking for in that letter of explanation, but basically, it should explain the facts. For example, you sold a car, and this was the deposit of the proceeds.

If the deposit was a gift, you should provide a signed letter from the person who gave you that gift, stating that it was a gift and they do not expect to receive repayment.

Have Questions About Bank Statements Or Other Mortgage Issues?

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