This guide covers why do lenders request bank statements during the mortgage process. Many mortgage loan applicants wonder why do lenders request bank statements. One of the dozen items mortgage lenders require before starting the mortgage process is 60 days of bank statements. There is a reason why do lenders request bank statements during the underwriting process, says Dustin Dumestre, a senior loan officer at Gustan Cho Associates and an expert at helping borrowers resolve bank overdraft issues when asked why do lenders request bank statements:
If the mortgage underwriter discovers bank overdrafts during the mortgage underwriting process and there is no way of escaping it because borrowers do not have any other bank statements besides the ones with the overdrafts, my suggestion is to write detailed letter of explanation for each single overdrafts with supporting documentation.
Bank statements will be scrutinized for deposits and withdrawals. The mortgage loan underwriter will be the person going through bank statements. The underwriter will look for deposits and withdrawals of over $200. We will need sourcing for unusual deposits and withdrawals. Overdrafts will be closely looked at. This article will discuss why do lenders request bank statements during the mortgage underwriting process.
Overdrafts In Bank Statements
Most lenders do not want to see an overdraft from borrowers for at least 12 months before the borrower applies for a mortgage loan. Many borrowers ask how will the mortgage lender find out if they only require 60 days of bank statements. The answer is that Year To Date overdraft charges are posted on every bank statement. Bank overdrafts are viewed as financially irresponsible by mortgage underwriters. If you can avoid submitting bank statements with bank overdrafts in the past 12 months, try not to submit them, says Dale Elenteny, a senior loan officer at Gustan Cho Associates:
Any overdrafts will stick out like a sore thumb—mortgage loan applicants with overdrafts in the past stand a chance of getting a mortgage loan denial. Every lender has policies with overdrafts.
There is a reason why do lenders request bank statements. Some lenders take it harsher on overdrafts than others. Some lenders will accept overdrafts with a good letter of explanation. Other lenders will disqualify anyone with any overdrafts in bank statements. Bank Statements with overdrafts should not be submitted to processing or underwriting under any circumstances. If you need to submit a bank statement with overdrafts, try to get two months of bank statement printouts from the teller. Have the tell give you 60 days of bank statement printouts, and have the teller sign, date, and stamp the printouts. Turn in the bank printout instead of the bank statements because the bank printouts do not reflect the year-to-date overdraft fees. If the lender accepts overdrafts in bank statements, the loan officer can help borrowers with letters of explanation.
Why Do Lenders Request Bank Statements: Irregular Deposits
One of the reasons why do lenders request bank statements deposits is to make sure that the funds needed to close have been properly seasoned—irregular deposits of more than $200 need to be explained. Regular deposits like payroll checks are no problem. But irregular deposits all require proof and letters of explanation. The underwriter’s job is to trail the money in and out of your account. Suppose you got a gift for the down payment on your home purchase. In that case, the mortgage underwriter needs to see the copy of the check, the deposit transaction going into your account, and the donor’s bank statement 30 days before the donor gives you the gift. They want to see the funds coming from the donor’s account and into your account. Dale Elenteny of Gustan Cho Associates explains about gift funds and the donor providing their bank account information to the mortgage underwriter:
Most donors of gift funds want to keep their bank account information private and not provide 30 days of their bank statement to the mortgage underwriter. This often creates trouble with the donor and mortgage underwriter. The best way to avoid this is to get the gift funds deposited as soon as possible so the seasoning requirement passes on the gift funds. I have seen so many purchase transaction get denied because the donor did not want to provide their bank statement to the lender showing documentation of seasoning of their gift funds.
The underwriter will also want to see the source of the earnest money deposit given to the seller. They will want to see the funds seasoned in a bank account, leaving the bank account, and clearing the account. Unless borrowers want a major paperwork nightmare, do not close out or open bank accounts during the mortgage application process. When a bank account holder closes out an account, the underwriter needs to source where the funds from the closed account went. I will want proof as well as letters of explanation. Trust me, major mortgage delays happen due to sourcing bank statements, and although it may seem minor, it turns out to be a major deal, and closings WILL get delayed.
This guide on why do lenders request bank statements was updated on July 2nd, 2023.
