When applying for any mortgage loan, potential borrowers will have to provide a minimum of 60 days of bank statements which are then reviewed by underwriters.
The underwriter will analyze the bank statements and review any regular or irregular deposits as well as the use of overdrafts or large deposits.
Since a lot of people have numerous bank accounts, bear in mind that the underwriter will not have to review all of them but will need bank statements from the accounts that have the mortgage deposit as well as the most activity.
In this article, we’ll be taking you through everything you need to know about what you should provide to your underwriter.
If you have multiple bank accounts that contain your down payment, then the underwriter will want to review the accounts that contain the majority of the money for the deposit rather than all of the accounts.
Not only does this mean that they have fewer statements to go through but it is more likely that these accounts are used much more compared to the accounts with smaller amounts.
If the underwriter feels that they want to see more then they may ask you to provide more information as and when needed.
The first thing that the underwriters will monitor is any regular deposits which will most likely be a regular payment from any employment. These deposits are seen as normal and are not likely to be questioned any further.
What will happen is that the underwriters will begin to review whether there are any additional deposits made throughout the statements.
If you work a part-time job and your paycheck is cashed by the employer which you then deposit then this cannot be used as proof for your bank statement proof.
The majority of mortgage deposits are made via payments that have been made into bank accounts; however, if you have a cash deposit then it’s important to note that this cannot be reviewed as proof for the underwriter.
If you are paying with a cash deposit and can provide proof of regular deposit slips then this can be submitted provided it is regular. Another example can also include child support payments or alimony payments that have been regularly.
Irregular deposits are fine but there can be a bit of trouble depending on how irregular the payments made are. This is because an underwriter is looking to ensure that you can make regular payments when your mortgage is approved.
If you only have irregular payments within your deposit then this doesn’t give the underwriter any proof that you can make regular payments on time.
Other forms of irregular deposits can include a gift from a family member which are not included as proof as they are most likely to be a one-off payment.
If you have an irregular deposit made into your account, make sure that they are older than 60 days old as this won’t matter regardless.
The bank deposits are what the underwriters look at and it doesn’t matter what withdrawals the borrower makes. This means that any small or large withdrawals are not needed to be explained at all.
There are some automatic withdrawals that are observed such as monthly rent or other bills to ensure that the borrower can make their payments on time.
Other important things to bear in mind are any canceled checkers or other payments that require clearance which the underwriter may require further information for.
If the borrower hasn’t had any overdrafts in the past 60 days but has had overdrafts prior to that period of time then it is important to check what your underwriter requires as proof as some may ask for your Year to Date overdraft fees (known as YTD).
If you have had no overdrafts then this isn’t anything to worry about or provide. When you submit your bank statements, there may be a column that informs your underwriter of the YTD overdraft fees which they can then access.
The higher the overdraft fees, the more proof you will need to prove that you can make the regular payments.
Gift funds are accepted for any loan or mortgage application to help cover any closing costs or down payments.
For the gift fund to be approved, the money should be provided by a relative of the borrower and also include a certificate that contains the signature of the donor which dictates that the money is a gift and not a loan.
The letter must also state that the funds described and clearly stated are not going to be paid back by the borrower.
The donor will also have to prove the underwriter with a 30-day bank statement to show that the funds have been seasoned for a minimum of 30 days.
The gift fund should be transferred from the donor’s bank account into the borrower’s and submitted as part of the proof.
Overall, the underwriters will look at the deposits but not necessarily the withdrawals unless it exceeds a determined amount depending on the underwriter’s and lending institution’s requirements.
This means that you shouldn’t have anything to worry about in the long run but be prepared that your underwriter may ask for further information or proof to ensure that you will be able to make regular payments once your mortgage or loan has been approved.