Mortgage companies verify bank statements to assess loan risk and repayment possibilities. You’ll be asked to provide at least two months of bank statements on any accounts you want to be considered for the loan. This is a normal part of the bank statement verification process, although you may feel like you’re being put under a microscope.
Understanding what lenders look for and what is considered a red flag can help you prepare adequate documentation for an account check before a mortgage. You’ll also find tips on savings requirements to get a mortgage and take the next step to the home of your dreams.
What is the bank statement verification process?
During the bank statement verification process, a lender analyzes the financial documents that summarize your banking activity. You can request your bank to send these electronically or through the mail. The lender will verify bank statements, including deposit history, regular withdrawals, and your current account balance.
Do lenders check bank statements before closing?
Yes. Lenders verify bank statements in several ways and will sometimes contact the bank to verify validity. Some will only verify your paper documents, while others accept electronic documentation. A few import income and asset information digitally, eliminating your role as the middleman.
As a part of the process, lenders usually look at income, assets, savings, and a borrower’s creditworthiness. You may also be asked to provide proof of deposit.
Why would you need a bank statement verified?
Mortgages are enormous financial commitments that involve taking on significant debt. You risk losing your home if you default. Lenders stand to lose money if you can’t make your monthly payments. Do lenders check bank statements before closing? Yes! Verifying your bank statements is one way they ensure you can repay what you borrow.
Types of financial information that need verification
The bank statement verification process varies between lenders. Most require a few basic types of information, such as:
- Your account number and type
- Checking
- Savings
- CD
- Account opening date and status
- Information on any authorized signers or joint owners
- Your current balance and average balance
- Account history, including recurrent deposits and overdrafts
Lenders are looking to see consistency in deposits and withdrawals. They don’t want to see any large, sudden deposits without a documented source as that can be a red flag. Knowing this, you can look at your bank statements with the eye of a lender and prepare for an account check before a mortgage.
Why do mortgage companies need bank statements?
Lenders request bank statements to determine your eligibility for a loan or to satisfy the requirements of government-backed mortgages. Do lenders verify bank statements? Yes. Lenders use bank statements as evidence of specific financial information.
Namely, lenders look at savings, deposit funds, and cash flow. They will also often verify this information with your bank. Here’s how you can be prepared in each of these areas:
Cash available
Demonstrating you have enough money saved to cover your down payment is one major concern for mortgage lenders. For that reason, you’ll need to demonstrate sufficient savings and lenders will check this as part of the process of verifying bank statements. Most lenders also require borrowers to have a few months’ worth of payments saved up in case of changes in jobs or other financial emergencies.
Sourced and seasoned assets
Lenders like to see that your assets are both sourced and seasoned. In other words, they want to know where your money comes from, which is the source. A sudden large deposit from an unknown source can be a red flag. Sources like employment income, investment income, or other regular deposits are best for mortgage lenders.
When lenders verify bank statements, they also want to know that it’s been there for a while. That’s what “seasoned” money is. Sourcing and seasoning help prevent fraud and money laundering. It also ensures that you’re not using a third-party loan to cover your down payment costs.
Closing costs
Lastly, your lender wants to ensure that you have enough liquid cash to cover your closing costs in addition to your down payment. Closing costs usually range from 2% to 5% of your loan’s total cost.
In other words, the more savings you have ready, the better. To increase the chances of loan approval, you’ll want to have the full deposit amount, three months of mortgage payments, plus 5% or more in savings.
What do mortgage lenders look for on bank statements?
Banks use a process called underwriting to verify your income and ensure you can afford your loan. But they also look for red flags that may indicate that you are a lending risk. These include unstable income, low savings, or regular overdrafts. Here’s how these can impact you during the bank statement verification process:
Unstable income
Banks prefer stable income with regular employment deposits because it indicates you can make your payments on time and in full. If you have drastic fluctuations in your income — for instance, if you’re a freelancer or you quit jobs soon after starting them — they may question whether you can repay your debt. Even if you are a freelancer with a regular income, you may need to get a co-signer or consider other options to get a mortgage without a regular income.
Low savings account balance
Lenders like to see that you have enough money in your savings account to cover emergencies like a job loss or sudden expenses. While the exact requirements may vary, lenders ideally like to see anywhere from three to 12 months’ worth of expenses in reserve.
A high savings balance suggests that you can make your mortgage payment if unexpected events arise. By contrast, a low balance suggests that you haven’t been able to build your savings, suggesting an additional risk.
Overdrafts
Most mortgage companies overlook the occasional overdraft. But frequent overdrafts signify that you often overestimate your balance or borrow more than you can afford. This can negatively impact your chances of securing a mortgage.
A large influx of cash
The point of a down payment is to build equity in your home and lower your monthly payments. But a large, sudden cash deposit may signal to lenders that you’ve taken out a loan for your down payment, defeating the purpose of making a down payment at all.
That doesn’t mean all large deposits are bad news. If a family member gives you funds for the down payment or you complete a long-term employment contract and are paid a large sum, it shouldn’t hurt your mortgage chances. Other common reasons for a large deposit: You may have received a raise, gotten a higher-paying job, earned a bonus, or been gifted down payment funds by friends or family.
To prevent problems, make sure you provide appropriate documentation of any large deposits at the onset of the bank statement verification process.
How many months of bank statements are required for a mortgage?
Typically, you’ll need to provide at least two months’ worth of bank statements for any accounts you want to use to help you qualify. If your bank sends quarterly reports, you’ll use that instead.
But if you have special financial circ*mstances, such as freelancing or spotty job history, you may have to provide up to a year’s worth of statements. The same may be true if you have lots of existing debt or apply for a jumbo loan.
How do mortgage companies verify bank statements?
Mortgage companies verify bank statements carefully, with lots of attention to detail. Taking out a mortgage often feels like being put under a microscope. Ultimately, that’s a good thing for you, as once accepted, the lender will be reasonably confident that you’ll be able to repay the loan.
If you’re in a solid financial situation and have a clean banking history, you probably don’t have anything to worry about. The bank statement verification process is just a way for the mortgage company to protect its interests — and yours.
Final thoughts on how mortgage companies verify bank statements
Bank statement verification is a normal part of the mortgage application process and not worth worrying about. With the tips above, you can prepare by taking an objective look at your bank accounts. If you have anything that a lender might not like — from large deposits to regular overdrafts or low savings, consider how to rectify the situation.
Maybe you’ll need to build additional savings, go several months without overdrafts, or provide documentation of deposits to prepare for an account check before a mortgage. With a little planning now, you’ll move more easily through mortgage approval and into your new home.
FAQ
Do mortgage companies check bank statements?
Yes, mortgage companies check bank statements. You’ll usually need at least two bank statements to qualify for a home loan.
Do mortgage underwriters verify bank statements?
Yes, a mortgage underwriter’s role includes verifying bank statements.
How many bank statements do mortgage lenders need?
Most mortgage lenders require two bank statements.
Written by Anna Yen Anna Yen, CFA, has nearly 2 decades of experience in financial markets, primarily with JPMorgan and UBS. Currently, she manages digital assets and her goal at FamilyFI is to empower families with financial literacy. She’s worked in 5 countries and visited 57.
