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Firsttimebuy…, Home Buyer in Seattle, WA

Why do they need bank statements?

Asked by Firsttimebuyer, Seattle, WA Wed Feb 17, 2010

When a lender requests bank statements to "verify funds" what are they really looking for? Our tax returns, W-2's basically prove we make the money we do. Why do they need bank statements? Are they really looking at how you manage your money, overdrafts, etc?
Any information is helpful. Thank you!

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It's a guideline that's the same wether you make $20K a year or $2m a year. People tend to spend what they make. If this is for a purchase, the lender needs to verify where down payment funds are coming from. Your assets typically need to be sourced and seasoned for 60 days. If there are any large deposits outside your normal income, those need to be sourced and seasoned. The bank just needs to know where the funds are coming from and make sure they're coming from you and not someone else.

If it's for a refinance, you most likely won't have to show too much for assets unless you are coming to closing with funds. Hope this help's

FYI- They are not looking to see how many times you go to McDonadls every week :)
0 votes Thank Flag Link Wed Feb 17, 2010
To answer your question literally as "to verify funds", that is about your down payment and closing costs. They not only need to see that you "have" it, they can tell that when they bring it to escrow. They need to know that you have had it ,and that you have personally accumulated the funds to close.

If all the money you need to buy a house appears in the two months prior to closing as one big lump sum deposit, then they will have to trace where it came from.

Generally you can't borrow funds to buy a house. Some of it can be gift, but they have to approve that gift and sometimes do and sometimes don't, and there is paperwork to verify it is a gift and not a loan. Who the gift came from is also important, so sometimes they want their bank statements too.

They will examine these more closely for some people than others, and may be "looking for" different things as to your statements than someone else's. The "they" is the underwriter. If it is a quick approval of an over-qualified buyer, she may simply verify the cash to close. If the underwriter is having a hard time saying yes, then she may pick over those bank statements with a fine tooth comb.
2 votes Thank Flag Link Wed Feb 17, 2010
Feel free to leave your funds in the annuity. Prior to closing, you'll probably asked for evidence of withdrawal of those funds to prove that you did in fact use them as intended for your down payment. But that's a prior to close thing, not a prior to purchase agreement thing.

Also, I realize that it seems like your loan officer has the best deal around but a quote is just a quote until your transaction goes live. Then and only then do you get a binding good faith estimate and that's what really matters. I know for a fact that there are a couple of loan officers that have replied here from washington are smart as whips (some of the smartest in this forum) and you may consider giving them a shot at your business. They might surprise you.

(I sure hope this isn't a particular national lender that advertises a 4.25 30 year fixed on their webiste, . . . Yikes!)
1 vote Thank Flag Link Mon Mar 1, 2010
Firsttimebuyer,

There are multiple reasons, but I'll give you the biggest reasons an underwriter wants to see your bank statements:

1.) To make sure the down payment is coming from an "allowable" source. For instance, if it's a gifted down payment, that may be allowed but SOURCING the gift from an allowable donor is required. One example, you may not be able to receive gifts from non-family donors.

2.) To make sure you didn't open any new loan for a down payment. Many loan guidelines actually will allow you to take a loan for a down payment (in fact, most of the Down Payment Assistance programs offered throught he Washington Housing Finance Commission IS a small loan for a down payment- Reference http://www.wshfc.org). However, if you do take a loan for a down payment, the terms, balance and payment of your loan must be calculated in your debt ratio.

3.) To see if the money is coming from an account that is shared jointly with someone else. If it is shared jointly, you must get written consent that the funds from that account can be used for a down payment from the other account holder.

4.) (this is the major point Ardell mentioned) making sure you have enough funds to close. It costs time, energy and money to get all the way to closing and NOT having enough money to close. It seems uncommon and is definitely uncommon from seasoned loan officers, but it does happen from time to time and probably more often than we'd all like to believe.

There are many other reasons, but those are the biggest ones. I tried to cover these topics in a blog post about making sure your earnest deposit can be sourced.

http://www.keaneloans.com/2010/02/22/make-sure-your-earnest-…

The same reasons apply.

Remember that mortgages (at least nowadays) are more balance sheet lending than credit driven lending. You can get a mortgage with pretty average to below average scores if you have money down, good work history and the purchase makes sense compared to your expenses (including your new mortgage). Are they looking for large deposits and overdrafts? Yes, they probably are. However, they're looking for ANYTHING they feel should be clarified. That said, the 4 reasons above are often the biggest reasons an underwriter wants to see your statements.

FYI, if you're already having problems reaching your loan officer, you should consider switching. Being this is your first home purchase, you'll never really understand how important it is to have somebody who's available. They don't have to be local, they just have to be there when you need them in some capacity. Especially to answer questions like this. There are SO many other questions you may NOT ask because you feel they're too busy for you. You can keep asking in this community, which is helpful, but you want a professional and an expert working for you too, not just guiding you through from online answers on a forum. I know for a FACT that there are multiple people on this thread who would do a better job. I'd be happy to remove my name from the hat as an available loan officer to help you just to express how important this is (and how much faith I have in some people in this community). Your first home buying experience is so heavily effected by the quality of loan officer and lending institution. For every first time buyer who has a great experience, there's often another (if not two) other buyers who had a horrible experience. If you want to see for yourself, start a new thread called, "Real Estate Agents, how many transactions did you have fail due to financing in the last year?". Trust me, it won't be a pretty thread.

@Ardell and Rhonda, It's good to see familiar faces here! Looking forward to seeing you two at the next barcamp.
1 vote Thank Flag Link Mon Mar 1, 2010
Not to worry, no offer has yet been made. We are just looking at various scenarios - nothing has yet been set in stone. Lastly I was trying to figure out if its beneficial to remove funds from an annuity well before we plan to make an offer or close vs. leaving them in the account to continue to accrue interest. I ask these questions here because I was looking for differing opinions on the matter and to see what others' standards are, as I thought was the purpose for this "forum". However I keep being sent back to the lender! Of course we have also asked the lender we are hoping to work with. But as we've seen in the last year that we've been talking to different lenders and agents, we get mixed answers.

Thank you again to those who provided your helpful insight! I think we have a better insight now!
1 vote Thank Flag Link Sat Feb 20, 2010
Thanks for all the really great input.
I've heard a few folks use the term seasoned. Does this mean you should have had the funds for a while? If I take the monies (for down payment and/or closing) from a retirement plan right before I need the money, does this look bad? Why am I submitting bank statements when the money's not even in there yet.

As for the overdraft piece, my account doesnt sit overdrawn and thus, is not at a neg balance at the end of the month. Its just matter of writing every last item down ALL the time right away :) But I am always able to bring back to a positive right away.
1 vote Thank Flag Link Wed Feb 17, 2010
Bank statements show the bank that you didn't borrow the funds for the down payment and closing costs. It proves that you do have sufficient funds that you saved. Your W2's only verify your income, not your savings. Also, if someone is not able to save money and they are making a significant increase in their housing payment, the bank may not feel they can qualify for the new payments. Hope this helps. Good Luck!
1 vote Thank Flag Link Wed Feb 17, 2010
You have to verify the funds and income to support that you actually make the money that you say you do. There are no stated income loans anymore.
0 votes Thank Flag Link Mon Nov 4, 2013
my dad just co signed on a car for me and he owns his own business. he showed tax returns and everything from the last 3 years, but he doesnt have a bank account, he does everything through cash. the car dealership let me take the car the day i have had it for 2 weeks and since my dad doesnt have bank statements they are trying to take it back. what can i do to keep my car?
0 votes Thank Flag Link Sun Nov 3, 2013
Dmanci,
If you are in Washington, look up the term "Bushing" as it relates to car dealers. Unless the rules changed, you have the law on your side. Here's a link to the Atty Generals site regarding this. http://www.atg.wa.gov/page.aspx?id=25026#.Unc0vnbTlok
Flag Sun Nov 3, 2013
@Leanne

You're correct, an employer can gift the down payment. Good catch!
0 votes Thank Flag Link Tue Mar 16, 2010
Leanne,

I'll get back to you on this. Employers may be allowable, but I haven't been asked that one. Good question!
0 votes Thank Flag Link Fri Mar 12, 2010
For starters, if this a question that your Loan Originator is unable to answer, I would run (not walk) to another loan officer!
If the loan you are attempting is requiring a down payment and/or reserves, those funds must be verified and "seasoned" in the bank for a minimum of one month. They want to make sure that you didn't borrow the funds from somebody and/or that they are from an "acceptable" source.

Check out Keane's answer too, very detailed and right on the money. Hope all this helps!
0 votes Thank Flag Link Fri Mar 12, 2010
@ Keane, I thought FHA does allow gifts from non-family, such as an employer?
(And that would certainly be a very generous employer!)
0 votes Thank Flag Link Tue Mar 9, 2010
Bryce, nobody answered his annuity question.
0 votes Thank Flag Link Tue Mar 2, 2010
Why do you people keep answering the same question that's been answered 20 times. Don't just answer a question to get your name on the top of the thread. Do something better with your time.
0 votes Thank Flag Link Tue Mar 2, 2010
The lender is looking for a couple of things when reviewing your bank statements including large deposits (be prepared to provide documentation to prove where they came from), NSF and to make sure that you have enough funds for closing and for reserves (most lenders want a minimum 2 months of your total mortgage payment left in your account after closing).

I've provided a link to an article I've written about this on my mortgage blog. Good luck!
0 votes Thank Flag Link Sat Feb 27, 2010
Dear Firsttimebuy,

In my experieince, over 20 years, lender's have always asked for a certain number of months of bank statements. It is part of FNMA guidelines for loan underwriting and it is also part of what portfolio lenders require. It helps the lender verify your cash flow and your ability to pay the loan. We all spend our money differently.

Since you mention W-2's you must be an employee, so you will be required less paperwork than a person who is self employed.

Good luck, and know that you will want to get pre-approved with a lender as soon as you become active in your search. Most of us Realtors can recommend great, experienced mortgage banker / brokers which is the very best way to go because it expands your options. I also recommend Mortgage Planners.

Here are a couple of deadlines for you to consider: the deadline for the First time homebuyer tax credit is coming up and the Federal government is stopping their investment in mortgage back bonds, so that indicates rates will be going up after the end of March.

The very best time to purchase, since affordability has been tracked is now, and that may be nearing it's end. The incentives to boost the housing market are stopping in June.

On my website, http://www.karenmcknight.com at the button called About the Area / Service Providers, I recommend some great lenders.

Good luck with your plans. It is definitely an opportune time to buy.

Warm Regards,
Karen
0 votes Thank Flag Link Tue Feb 23, 2010
As long as you can provide a paper trail, and can access the funds when necessary, you should be fine.

I think we're all saying to talk to the lender because at some point, we've all had the last minute problem that we've had to scramble to fix :)

Good luck going forward, it sounds like you're in a great position!
0 votes Thank Flag Link Sat Feb 20, 2010
If you have an agent, and as a first time buyer I hope you do, perhaps he or she can get the questions answered. If you have no agent and a lender who is hard to reach, you have to ask yourself how fair is that to the seller of the home who thinks their home is sold and possibly packing up their belongings to move out? When you enter into a contract with a seller of a home, you are not only responsible to yourself to "get the best deal", you set off a chain of events that involves many other people who are working toward closing. In the best interest of ALL parties we urge you to get these answers from the source of the loan and likely these things should have been known by you before the seller accepted your offer to purchase.

I do hope it all turns out well for you...and everyone else involved in the real estate transaction.
0 votes Thank Flag Link Fri Feb 19, 2010
Firsttime,
You have set off several alarm bells in my head. First, you need to ask questions in a fairly anonymous way here and second that you feel your lender is such a good deal, but is not reachable and has not informed you regarding your funds, seasoning, gift funds and letter.
Your purchase and sale are riding on your loan, not to forget your earnest money. Gift funds must be sourced, are often limited as to how much of the down payment can be a gift, and require a gift letter signed by the giver.
Your portion of the down payment must be in your account 60-90 days in most cases. Since we have no idea who your loan is going too, it's impossible for anyone here to answer with any authority, and frankly as I have previously written, these are matters you are paying your lender to address with you.
Many a purchase and sale fail due to lender and loan issues. By lender, I mean anyone involved with handling your documentation from your loan officer, their processor, the underwriter, the lender themselves. A good deal is one that gets funded at a competitive rate. A great rate that never funds is no bargain.
If your lender will not come to the table and answer all your questions and concerns, confirm you are on track to get your loan funded, consider another lender, and do it quickly if you have a purchase and sale in process.
0 votes Thank Flag Link Fri Feb 19, 2010
There can be different rules for different lenders, and different rules for gift funds vs. your own funds. Only the person who is processing your loan can tell you. We can say "60 day seasoning is often required", but only she can tell you what the rule actually is for you and your loan.

Maybe you can email her vs trying to call her, or maybe she has an assistant or processor who can help you. But if you are in escrow, you really need to have the real facts from your specific lender as they really do have their own "rules" about these things.
0 votes Thank Flag Link Fri Feb 19, 2010
From what I've read so far, I'd let her know your concerns. There probably isn't a problem, but if there is, it's best to let her know about it early on when there's a chance to find alternate solutions.
0 votes Thank Flag Link Fri Feb 19, 2010
She is not local and sometimes not as reachable as I'd like. It is the best deal around though for us so we are still happy with her.
0 votes Thank Flag Link Fri Feb 19, 2010
Bryce is right, you need to talk to your broker. If you're concerned about the seasoning, your broker should know about it. Things can go south if your broker doesn't have all the information he/she needs.
0 votes Thank Flag Link Fri Feb 19, 2010
I'm surprised no one has said this yet - your lender is attempting to verify the paper trail of your money. Thus they're looking back "x" amount time to prove that your savings is what you say it is, that a lump sum wasn't deposited last week and risks being transferred back out next week. They want you to have ownership of the money going as far back as the data they collect...thus the term "seasoned" mentioned in other posts.
Web Reference: http://www.wilsonliving.com
0 votes Thank Flag Link Fri Feb 19, 2010
Firstimebuyer...I have a question for you now...where is your loan officer?
0 votes Thank Flag Link Fri Feb 19, 2010
Thanks for everyone's input.
Here's my next question then. If they are looking to verify funds, how long should I have had the funds for closing and down payment in the account? If part of it is gift funds and part of it is income but only in the account the day I made the offer on the property (so a little over a month before the date of closing), is this long enough?
0 votes Thank Flag Link Fri Feb 19, 2010
They aer basically verifying your funds to close or funds for reserves. They are looking to see fi there are any large deposits. If so they will want them explained to make sure you do not have a new loan that you have not disclosed. They are nto typically looking for overdrafts, but if there are a lot of them it could be a problem.
0 votes Thank Flag Link Fri Feb 19, 2010
Seconding Bryce's reply. The lender is validating your funds to assure the money has been in your possession for the duration of 60 days so that there hasn't been any "laundering" activity. They are not reviewing the statements to see how you manage your money. You don't have to show them a checking account. Savings accounts, CDs, etc can be used instead.
0 votes Thank Flag Link Wed Feb 17, 2010
"seasoned" is again about "where did the money come from?" If you are using your own money that you have saved, then it is not an issue. "Seasoned" is not about which of YOUR accounts it was in...only that it is not coming from a source that is not your money. After X days (often 60) they don't check, or they may not check. But if you received the money as a lump sum (from a lawsuit as example) vs. having saved it over time, that could have an impact.

As to "overdrafts", if you have money in other accounts, then your account may be "overdrawn" but not "you". If you have $50,000 in savings and overdraw your checking...no one cares. If you continuously overdraw your checking, have zero savings, and you cover your overdraft with your next paycheck (living paycheck to paycheck) that will not be good.

You may want to consider an automatic transfer system with your bank to avoid overdrafts. You said "But I am always able to bring back to a positive right away." Where do you get the money to do that? Do you borrow it? Do you have to wait for your next paycheck? Or do you simply transfer it from another one of your accounts where there are more than sufficient balances on hand?

Where that money comes from to cover the overdraft, will make a difference to an underwriter.
0 votes Thank Flag Link Wed Feb 17, 2010
Boy, where's all the mortgage professionals on this thread?
Having your funds sourced and seasoned means you are able to to show your funds for a certain length of time. The typical seasoning is 60 days. If you have funds from a retirement account and going to transfering them to another account, you can do that at anytime, but you will have to show a "paper trail". Here is how you would show that:
-provide retirement account showing the funds withdran and transfered
-provide bank statement recieving the funds from the retirement account

You simply just need to connect the dots for the lender. They need to know where is the money coming from and where is it going ?
0 votes Thank Flag Link Wed Feb 17, 2010
Firsttime,
If you have the funds in an existing retirement account, they will be seasoned. Seasoned means having the funds in an account you control for at least 3 months. If you were receiving gift funds, or another loan for the down payment, this would have to be disclosed.
These are good questions to be asking your lender. I hope they are available to you and responsive to your issues. While we are all happy to answer your questions on a site like this, we have limited information about your whole circumstance that your lender does have. Insuring you understand this process and can get detailed specific answers to your questions is that lenders job. Don't be bashful in asking all you need to know, in reality the loan is as big of a decision as the house purchase itself and carries long-term significant consequences you should fully understand. As a lender myself, I get paid in part to make certain my clients are fully informed of the process and answer all their questions.
0 votes Thank Flag Link Wed Feb 17, 2010
Seasoned means that the funds have been there for awhile. The bank wants to know that you actually earned/saved that money as opposed to borrowed it. Since your downpayment is coming from a retirement fund, they won't appear "seasoned" in your bank account, but the paper trail from the origin (your retirement fund) will be there to show that the funds weren't borrowed.

This should all happen in the background, your broker should be working with the underwriter to clear these conditions.
0 votes Thank Flag Link Wed Feb 17, 2010
Firsttime,
As others have said, you are verifying your ability to provided the down payment and manage your funds. An occasional overdraft may not be an issue, but a pattern could be. In light of the past 3 years of Mortgage Banks meltdowns, these documents are absolutely necessary. This is why getting Pre-Approved early in the process is critical. If you get this step out of the way before you fall in love with a house, you have an opportunity to make some changes and if necessary do some credit repair work.
In addition to your bank statements, make certain you include and retirement, 401k, IRA statements as well. Even though these funds are not readily available without penalty, banks consider them as additional assets in your favor.
0 votes Thank Flag Link Wed Feb 17, 2010
A lot of great answers so far... Judging by your handle, this sounds like the first time you've gone through this. Bank statements are a requirement for all loans. This is absolutely normal and main point of focus is to verify that you have the assets and down payment that you are claiming, and that they are "seasoned".

Good luck with the rest of the transaction, hope all goes well!
0 votes Thank Flag Link Wed Feb 17, 2010
Let me give you a real world example of how money can work.

A friend of mine had 2 times the income I do. That friend had a little money in a retirement account and was very tight in his spending ability. He had enough bills that had to be paid every month that he was barely squeaking by.

My income was half of his. My expenses were much lower than his. He had a car payment, I bought $1,000 or less vehicles and fixed them as needed. I never had a monthly payment. I did not eat out, he did. I carefully looked at every penny I spent. I saved a relatively large amount of my income. He did not.

My net asset value is many times my (twice as well paid) friends.

Income alone does not mean you can, will, or have saved any money at all. Income only means you have x coming in. If you spend x+1 you are in trouble. If you spend x-1 you will have savings available.

The lender wants to see your bank statements to make sure you have saved money, they require a down payment and it is a waste of their time and money if they assume you have it and then at closing discover you are actually broke with $23.26 in your pocket and need to get gas on the way home.
0 votes Thank Flag Link Wed Feb 17, 2010
No need to worry about overdrafts unless you account balance is currently negative. Your credit is what's important. As long as you don't have recent bankruptsies, foreclosure, liens, collections or judgments, late payments, you should be okay
0 votes Thank Flag Link Wed Feb 17, 2010
Should I be worried if I have overdraft history in my checking account?
0 votes Thank Flag Link Wed Feb 17, 2010
That's a valid question. One's financial situation can change drastically from the date of their last tax returns and W-2 form, so lenders will want the most up to date picture of your financial situation as possible. Bank statements provide a portion of such a picture. Most lenders want to verify a few things when looking at bank statements:

1) the amount of ready liquid cash you have in the bank (in checking and savings)
2) your typical monthly income & expenditures which allows for a more accurate glimpse of your debt to income ratio

Hope that helps

cheers!
0 votes Thank Flag Link Wed Feb 17, 2010
Just another form of collateral determine if all is valid, many try to submit alter documents bank just wants additional proof. All home buyers must submit bank statements, I am a Realtor, and loan officer if I were purchase any property I still have do same as any home buyer even if I were do my own loan

Lynn911
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Wed Feb 17, 2010
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