Evaluate Your Documentation Prior to Giving It To The Lender
When you purchase a home using a mortgage, you’ll need to verify your income and liquid assets through documented proof.
Additionally, your down payment will need to be sourced and must be an acceptable source per the lender’s guidelines.
It is very important that you review your account statements thoroughly prior to giving them to the lender’s underwriter. The reason is because you may have danger signs that, if discovered, may call for convincing explanations.
The good thing is you can correct many problems before they become, problems in getting a mortgage. The following are what to look out for, and how to take care of issues you uncover.
Mortgage underwriters are trained to uncover funds from unacceptable sources, debts that are not disclosed, and improper management of finances when reviewing your bank statements.
The probability of getting your mortgage-approved increases when your bank statements have nothing that calls attention.
1. Bounced checks
If your checking account is plagued by numerous overdrafts or NSFs (non-sufficient funds) fees, underwriters are very likely to determine that you’re not very good at taking care of your financial obligations.
When bank statements contain Non-sufficient fees, extra analysis and overlays may be required even if your loan was approved electronically.
2. Large deposits that can’t be sourced
Unusual bank deposits may possibly signal that your funds for the down payment, closing costs, or necessary reserves are from an unacceptable source.
The lenders does not want applicants to have funds that are “borrowed” as they will incur additional monthly payments. However, some borrowed funds are allowed, you just need to disclose it and it must be within the lender’s debt to income ratio rules.
An “unacceptable deposit” source is one where the home buyer is helped from a person or entity that will gain from the transaction — like the seller or realtor, or investor using you as a straw man.
If you are unable to provide a deposit source that is acceptable for that particular loan product, then the lender will have to subtract those funds and use the remainder to qualify you for financing. If those funds are necessary, you will likely not be approved for the loan without an acceptable source.
It is important to note that if those unacceptable funds are in your account for more than 60 days, then it becomes acceptable. So, waiting is a good strategy. However, using funds from a party who has an interest in the transaction is ethically a violation.
3. Monthly Payments not on Credit Report
If you have regular monthly payments on your bank statements that are not showing on your credit report or on the loan application, that will present a problem.
There are some creditors who don’t report to the major credit bureaus like a private loan from an individual instead of a commercial bank, those debts probably will not be listed on your credit report.
When the underwriter sees a $400 payment on your bank statement each month and around the same date, it strongly indicates an undisclosed debt that needs to factored in.
Some savvy mortgage companies use a Verification of Deposit, or VOD, to get around issues on a bank statement.
However, financial depositories are forced to list the account holder’s average balance. That aspect alone can still indicate a recent large deposit.
As an example, if the current balance is $15,000 and the two-month average balance is $3,000 a recent and substantial deposit is very likely.
Moreover, there’s a blank field on the VOD whereby the bank is asked to “include any additional information which may be of assistance in determination of credit worthiness.” This is the area where your NSFs may be mentioned.
Now you know some good reasons to review your bank statements prior to sending them to your lender. In today’s lending climate, lenders want to know a lot more than they did before the financial crisis. It is best to not make them suspicious