Why Lenders Want to See Your Bank Statements
This might be a bit too obvious but there are other reasons why lenders want to see copies of your bank statements besides seeing how much money you have. One of course is in fact to see how much money you have but not enough just for your down payment. There are a few loans out there that don’t ask for a down payment, but those are typically government-backed programs such as VA and USDA programs. Lenders also need to know if there are enough funds available for closing costs. That might also be a bit obvious but there are two basic types of funds, recurring and non-recurring.
Recurring closing costs are those that will happen again in the future. What type of closing costs will happen again in the future? Think property taxes and homeowner’s insurance. There needs to be enough verifiable funds to cover those as well. And for those who need or choose to have escrow or impound accounts, there may also be a requirement to have a couple of months of both taxes and insurance available, too.
These smaller amounts will be used to initially fund your escrow or impound accounts. Finally, there are interest charges. When you close on your new home, the lender will ask for a per diem amount of interest to be collected up to the first of the following month. If you close on the 20th, lenders need 10 days of interest to be collected. This in essence is your first month’s payment.
Non-recurring charges are those one-time fees associated with obtaining a home loan. Some of those might be for an appraisal, credit report, title insurance and lender fees to name a few. Your loan officer will provide a pretty solid estimate of what your closing costs will look like at your settlement.
Lenders also want to see if there are any unexplained deposits in the account. If someone gets paid on the 1st and 15th and then a random deposit of a relatively sizable amount shows up, lenders want to make sure the funds are not a loan that will ultimately have to be paid back.
If you’re self-employed, not only will lenders want to see enough for both recurring and non-recurring charges, but also examine cash flow. Most self-employed borrowers don’t give themselves a paycheck on the 1st and 15th, but have income streaming in as work has been completed and invoices have been sent. Lenders will also look at more than one-months worth of statements because they want to see consistent earnings from one month to the next.
Written by David Reed for www.RealtyTimes.com Copyright © 2023 Realty Times All Rights Reserved. Reed is from Austin, Texas and is the author of The Real Estate Investor’s Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. A Senior Loan Officer and Mortgage Executive for more than 20 years, he has also appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show.
