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Bank statements reviewed for closing costs and reserves at closing table

How Bank Statements Can Kill Homebuyer Hopes at the Closing Table

Avoid Surprises

One of the final and most important steps toward closing on your new home mortgage is to produce bank statements showing enough money in your account to cover your down payment, closing costs, and reserves if required.

When you’re buying a new home and approaching the finish line, emotions are high and timing is tight.

This is NOT the time to find out that your loan officer did not properly explain how important your bank statements will be at the closing table.

I received a question from one of our readers last week.  Reading deeper into the question, there’s much more here than meets the eye.

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The Question

I am closing on a home in November.  I know my bank account has to show the amount for closing.  Does it have to show at least one mortgage payment amount also?

Thanks, 
Rhonda

Analyzing Bank Statements

Simply having money in your bank when you’re at the closing table is not enough.  The underwriter will review your bank statements, looking for unusual deposits, and to see how long the money has been in there.

The industry term for this underwriting guideline is the “Source and Seasoning” of your funds being used to close. Before the lender fund the loan, the underwriter will have to sign off on your bank statements.

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The source of your funds is not necessarily where the funds are saved, but more of a verification that the funds have been in your account, and can be documented on the most recent two months statements.

Deposits made into your account prior to the most recent two months asset statement are considered seasoned and do not have to be sourced. The seasoning requirement for most lenders is typically statements covering the most recent 60 days prior to closing.

Closing Costs and Reserves

When calculating how much you need in your account at closing, you should consider both closing costs plus any reserves required by the loan program you are using to buy your home.

Closing costs and reserves differ in that closing costs must be spent, and reserves only need to be saved, documented and accessible in an emergency.

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Understanding Closing Costs

Closing costs need to be wired from your bank account to the closing table, whether it be an Attorney, or Escrow Company, depending on what area of the Country you’re buying in.

Closing costs may include, but are not limited to:

  • Closing service fees (escrow or attorney fees)
  • Title search fees
  • Recording fees
  • Transfer taxes
  • Lender fees
  • Pre-paid interest
  • Pre-paid impounds (taxes and hazard insurance)
  • Pre-paid HOA fees (home owners association)

Understanding Reserves

Reserves only need to be verified, and are not required to be withdrawn.  Reserves are liquid funds that you could have access to if you had to.

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Reserves are typically measured in months of reserves in terms of having a determined number of months of PITI (principal, interest, taxes, insurance) in savings, and available for withdrawal.

Reserves are most common with low credit score FHA loans, and most Conventional, Jumbo and Portfolio Loans.

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FHA and VA typically will not disqualify you through the automated underwriting system if you do not have reserves, but if you have trouble getting an automated underwriting approval, having reserves can offset risk as a compensating factor.

Common sources of reserves may include, but are not limited to:

  • Checking or savings account
  • Cash value of life insurance (if withdrawal is allowed)
  • 401k or other retirement account (if withdrawal is allowed)
  • Cash value of stocks, bonds, or other liquid assets

Reserves can be tricky because they can vary greatly from one loan program to another, and are also a common “overlay” added to the underwriting guidelines by a lender.

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It is not uncommon for a lender to consider reserves as a compensating factor that may allow them to accept higher risk areas of your application, like low credit scores or high debt to income ratios.

It is also not uncommon for a lender to simply impose reserve requirements to filter out loans that they perceive to be of higher risk of future default.

Using Gift Funds?

Most loan types allow you to use gift funds for closing costs and/or reserves.  Gift funds can almost always be accepted from close family like mother, father, sister, brother.

The best way to accept gift funds is to have the donor wire the funds directly to the closing table.  Most underwriters will ask for statements from the donor to verify that they had the money available to gift.

The gift giver must also sign a Gift Letter stating their relationship to you (the buyer), the amount of the gift, and the understanding that the money is a gift, and is not expected to be paid back.

Gift funds are seasoned the same as the closing cost and reserve documentation requirements, which is typically statements covering the most recent 60 days prior to closing.

NOTE:  Gift funds deposited into your account prior to the most recent two months account statements are considered seasoned funds and do not have to be sourced.


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We are here to help you get the right answer, the first time, and connect you with an experienced loan officer that can help if necessary.

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About the Author

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Michelle says:

    My husband and I are in the process of an FHA loan, we have given our loan officer 3 months bank statements so that the funds would show we had enough for our down payment. The seller is paying up to the 6% in closing. Should we not use any of that money even though we will have enough in our accounts at closing? We still need to pay a couple of small bills and we are afraid to touch the money.

    • Scott Schang says:

      Hi Michelle, this is a question you should ask your loan officer because you are only required to have “enough” money in the account to meet reserve, or closing cost requirements for the loan. DO NOT buy big-ticket items, but you should be able to most certainly pay your normal bills.

      Don’t be afraid to use it, and most importantly, don’t be afraid to have this conversation with your lender. Depending on the transaction, you may only need a small portion of that balance to remain in the account.

      I hope this helps?

  • Luis says:

    Hi Scott, I think it will be OK base on other answers you gave to similar questions, but still wanted to make sure. I have an account just for my down payment and closing coast that I have been depositing every paycheck I will be making a large deposit of money I keep under my mattress. I will give it 60 days but will it be OK to also continue to deposit money from my paycheck or just stop all deposits and let it sit for 60 days.

    Thanks,
    Luis

    • Scott Schang says:

      Your paychecks are always ok – just keep a copy of your pay stub in case the lender wants to verify the source of those deposits. And YES, get that “cash” into the account so that you can get 2 statements that do not show that cash deposit. If all you see if paychecks for 2 statements, you’re ok!

  • Andrew says:

    Hey Scott, Just wanted to comment that this article has been very useful in helping me understand mortgage reserves. My wife and I are selling are 1st house and upgrading into something much bigger (and much more $$). We have been diligent in saving enough for 20% down in order to avoid the mortgage insurance and had no idea that we would have to have any mortgage reserves (6 months, yikes), let alone what they were, and got very disheartened thinking we might have to cut back on our preferred square footage and price range. Knowing we wont have to keep the reserves in there after closing gives us a little hope. Thanks again 🙂