When applying for a mortgage, your lender will ask to see your financial documents, including your bank statements. Lenders examine bank statements to check your eligibility for a mortgage. Read on to learn more about bank statements and ways to better your odds of being approved for a mortgage.
What is a Bank Statement?
A bank statement is a monthly or quarterly document that lists all of your banking activity. This helps track finances and gives you the information you need to catch any account mistakes, along with your typical spending habits.
Each statement usually lists the following:
- Deposits, such as direct deposits, cashed checks and transfers received.
- Withdrawals, such as purchases, transfers sent, ATM withdrawals
- Any interest the account has earned
- Any fees charged by the bank
How To Find Bank Statements
Log in to your bank or credit union online to find your bank statements. Once you have logged in, look around your dashboard. You may see a tab labeled “Statements” or “Documents.” Once there, you should see links to PDF files labeled “Statement” and the dates. Print out at least two statements from all of your accounts for your lender.
Why Do Lenders Need a Bank Statement?
Lenders need to see your bank statements to ensure that you have enough money in your accounts to cover your down payment and closing costs. They will look out for any red flags. For example, someone with numerous overdrafts within a few months before closing on a home may be considered a risk to the bank.
What Do Underwriters Look For?
The underwriting process is when banks and lenders measure the risk of loaning money to a certain borrower, and to determine if that risk is acceptable. Here are some red flags underwriters may look out for:
- Unstable income – Lenders want to make sure you have enough money to cover your mortgage payments. Underwriters will look for a stable source of income. If there was a sudden change in the last few months, lenders will want to know why, so it’s best to have a written explanation available in case they contact you.
- Low savings account balances – Lenders want to know you have enough money in your savings account to cover your mortgage in the event of getting laid off or receiving an unexpected medical bill.
- Large influx of cash – A sudden, large deposit into your account might signal to your lender that you’ve taken out a loan for your down payment that is not showing up on your credit report. Using a loan for your down payment defeats the purpose of the payment itself and signals that you’re a risky borrower.
- Overdrafts – Overdrafts are when you spend or withdraw money more than what is in your bank account. Regular overdraft fees can be a red flag for lenders.
You can improve your chances of getting a loan by keeping your finances in order and being available when your lender asks for any additional information. Try to avoid any of the red flags mentioned above, don’t take out any major loans before applying, and watch your account spending.