Whether you are applying for a stated income or a traditional mortgage, your loan officer could ask for your bank statements. These documents are used to verify and document your income. Lenders are required to do their due diligence on your ability to repay your debt and your bank statements and other asset documentation will prove that.
Because most loans are underwritten via an automated platform, e.g. Desktop Underwriter®, the need for bank statements may crop up during underwriting. Nontraditional loans such as bank statement loans are based off on the flow of money into bank accounts so that they go hand in hand with the loan application.Find out the role of bank statements in applying for mortgages. Find a lender today.
Bank Statements and the Mortgage Process
When making loans, lenders must ensure that the borrower has the capacity to pay the debt to be incurred. They would look into the income of the borrower to make this determination.
Moreover, lenders need to check if the borrower has enough assets (readily convertible to cash) that can cover the down payment, closing costs, and reserve requirements.
Bank statements can cover both for the lenders in their quest to track the assets and income of the borrower. They are also helpful in verifying the identity of the borrower and the information as it pertains to asset accounts set forth on his/her mortgage application.
Usually, lenders look at deposits that fall outside of the declared income source of the borrower, e.g. an unexplained large deposit used for down payment. Or it could be recurring withdrawals that pertain to an undeclared debt obligation.
Mortgage borrowers like you can present your personal bank statements. If you are self-employed or are a majority owner of a business, both personal and business bank statements may be required.
Bank Statement Loans
These loans perfectly sum up the role of bank statements when applying for mortgages.Shop and compare mortgage rates.
Niche lenders who make these mortgages usually require personal/business bank statements for 12 consecutive months, thus dubbed as 12-month bank statement loans.
These lenders recognize the struggle of self-employed borrowers to have their real income verified because of write-offs on their federal tax returns. Interestingly, some bank statement loans don’t require tax returns and their related tax transcripts.
What’s important for the lenders is a reliable, steady cash flow that they will use to calculate income. To arrive at income, lenders take the average deposits during the given period, net of debits and withdrawals.
They will then take into account recurring monthly expenses to get average monthly income. From the average monthly income and recurring monthly expenses, they can come up with the debt-to-income ratio of the borrower.
Indeed, good credit, liquid reserves, and provable income via bank statements are the main ingredients to a successful bank statement loan.
As with any other loan, expect to meet loan-to-value ratios, down payment requirements and asset reserves as well.
Don’t estimate the power of bank statements especially if you have difficulty getting financing under standard mortgage programs. You can always look at alternative or nontraditional loan products like bank statement loans.
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