Bank Statements: The Lender’s Window to Your Wallet

Your bank statements, like your credit report, are a window to your finances and your life. They are so much more than showing a lender your assets.

Lenders are looking for things like checks that have been returned for insufficient funds. If they discover these, they will want to get to the bottom of what happened. Was it caused by a bad check written to you? Was it mismanagement of your own finances? How did this happen? How often does this happen? What will keep it from happening in the future, if they loan you money for your new home?

Other red flags lenders watch for include large, nonpayroll deposits that seem to have no source. Was it the proceeds from the dining room set at the garage sale last month? Was it a reimbursement check for the office supplies you recently purchased? You may be asked to write a letter of explanation for items like these during the mortgage process.

If the deposit is a gift from someone for your home purchase, and that person is an eligible donor, the lender may ask for a signed gift letter. This must state that the deposit is for the purchase of the home and that there is no expectation of repayment on your part. The lender may also ask for proof from the donor of his or her ability to give you this money. The donor must verify that it came from a legitimate source, such as a bank account, where it has been for several months.

Why does the bank need such detail? It’s because there is a good chance that your loan will be sold to investors, perhaps multiple times. Investors will take a peek through the lender’s financial window, and your lender wants them to like what they see.

Why Get Preapproved for a Mortgage before You Shop?

Good question. There are a few good reasons for this.

The first is to properly set your expectations as a buyer. This sounds basic, but what if you think you can afford more than you actually can?

What if you start shopping, find your dream home, then discover you aren’t qualified to buy it?

You’re setting yourself up for disappointment as your dream home slips away.

Second, your mortgage professional will be able to tell you what you can use for income and assets, and can pull your credit.

This credit pull is reason enough to get prequalified. Yes, you are able to pull your own credit score, but you still need to know the impact of this score.

Your mortgage professional can tell you how it will affect your interest rate and for which programs you qualify.

This is valuable information to have as you start to shop.

Third, if you need to pay down or pay off debt to get your debt ratios in line, it’s better to know sooner rather than later.

If you find out what you need to do after signing a home contract, you might not have the time line or resources to take care of it all before closing.

This could spell disaster.

Lastly, you should get preapproved so real estate agents and sellers will take you seriously.

Some may not talk to you at all without a preapproval. Having that preapproval letter in hand will set you apart from unqualified buyers and take you a long way in the home-buying process.

Ask your mortgage professional for more details on how to get preapproved. His or her assistance will be invaluable as you begin the search for the perfect place to match your budget and lifestyle.