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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?


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.

Get Your Questions Answered

If you are like most people that visit this website, you’ve got a mortgage problem or an unanswered question and you’re having trouble getting answers.

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

  • Victoria says:

    Hi Scott,

    I am barely starting the option period with the seller, should I go ahead and send my bank documents and paystubs or wait? We only have money in the account where we have been saving, reserves would be coming from my 401k, will this affect our application? Another question is, my husband and I are still depositing from our paychecks to cover our closing, will an underwriter automatically deny us for not have the money in the account from the bank statement?

    • Scott Schang says:

      Hi Victoria, I’m actually very shocked that your loan officer has not asked for your bank documents or pay stubs. If you’re in contract to buy a home and you have not received an approval from the lender, this is a very dangerous way to start the process.

      Your down payment coming from your 401k is no problem at all. Using paychecks deposited during the process is also ok. I don’t have any concerns at all about any of the things you’ve mentioned, except for the fact that your loan officer has not already had this conversation with you.

      I’m not sure what your timeline is, but I’m nervous that you are not actually approved yet, and your loan officer does not sound like they have enough experience to recognize potential issues, if there are any.

      If you would like a second opinion, shoot me an email to scott@findmywayhome.com and let me know what State you’re buying in.

      You may also email me with any other question you may have along the way 🙂

      I hope this helps?

  • Meg Brown says:


    I was wondering how long reserve funds have to stay in the account after closing. I’m wondering in case there is an emergency and I need to pull from those funds. While I was told I needed 4 months of reserve funds to qualify for the first time home buyer loan, I was not told if those funds needed to stay in the account for minimum amount of time, or indefinitely. Thank you.

    • Scott Schang says:

      Hi Meg, I would ask your loan officer if there is any need to keep that money in reserves for longer, but you should be able to access that money as soon as your loan is closed. The lender can only require that the money be available at closing, and cannot require you to keep that money in that account once your loan is closed.

      Hope this helps?

  • Anonymous says:

    Hi Scott, I have a couple of questions please.

    First, I spoke with a broker who was supposed to be helping me determine eligibility for a mortgage loan. I’m a first time home buyer, I’m the only one on the loan and I needed assistance with down payment in the form of a grant. This broker told me that I would never qualify for any down payment grants, because despite my 680 credit score, I have old charge offs on my credit report. He said even if the charge offs are “paid charge offs” I still won’t qualify for any grants. In your experience is this information accurate?

    I am married but my husband has bad credit so I am going to be the only one on the loan. Do you know of anyone in New Jersey who specializes in Home Ready Mortgages where I can use my husband’s income without having him on the loan? I want to be able to get approved for a higher mortgage but my income alone is not enough to get past 200k. Thanks!

  • Marie says:

    If my husband is applying for a mortgage only but part of his paycheck is direct deposited into his account and some is direct deposited into my checking account will they need bank statements from both of us? And if I’ve had past overdrafts in my account will it affect him getting the mortgage?

    • Scott Schang says:

      Hi Marie, the bank account balance will come into consideration if reserves or verification of down payment and closing costs are required. But the fact that his check is split between two accounts shouldn’t be an issue.

      You’re really talking about two different things. His paychecks are income, which is verified by W2, pay stub or verification of employment by the employer. As long as his job is steady and his income will continue, it doesn’t really matter where that paycheck is deposited.

      If you are not a borrower on the loan, your bank account should not be used unless money to buy the home is coming from that account. If you do need to transfer money from your account to his, bring this up with your loan officer immediately to do this in the easiest way possible. You can run into seasoning and documentation issues if you start moving money around the wrong way.

      Sorry for the long answer to your question, but it is my opinion that your bank account, and therefore any history of the balances or anything else should not be an issue, and certainly will not impact your husband’s ability to qualify for a home loan. Especially if you’re not a borrower on the loan.

      I hope this helps?

  • Ashley Hudson says:

    What steps can I take if I have had an over draft ??

    • Scott Schang says:

      If you have an overdraft currently, the first step is to get the overdraft covered and the account positive. Past overdrafts are not necessarily a deal killer, it really just depends on the frequency and the type of loan you are applying for.

      If you had an accidental oversight on your account, this can often be explained away. Either way, your lender is likely to ask you for a letter of explanation so they can understand the circumstances around your challenges.

  • Alex says:

    Hi Scott,

    I am first time buyer FHA loan 3.5% down payment. I’m 100% business owner Inc. I don’t keep money in my personal bank. I keep cash on hands I don’t deposit my paychecks. I just cash them at the bank and I keep few hundreds in bank account to pay my bills and credit card. I just sent wire $3750 to open escrow. I have two questions. 1st Can I use my business account for down payment and closing costs? 2nd my paystubs of 2019 was $21.000.00 but I took $23.000.00 owner’s draw. Do I need to show underwriting my owner’s draw or just my income tax ? My income tax was $88,000,00. Please advise

    • Scott Schang says:

      Hi Alex, great question! The answer will mostly have to do with how you file your tax returns. Do you account for your business income and losses on a Schedule C of your 1040 personal tax return? Or is it a corporation and you issue yourself a W2 and/or K1?

      If it’s a sole proprietorship, it should be ok to use your business bank account as long as the funds are sourced, seasoned, and you can get a letter from your CPA stating that taking money out of the business will not impact your ability to operate the business.

      In all cases, the total of your paystubs and draw is not your income that will be used for calculating your qualifying ratios for the loan. Being self-employed, your taxable income from your personal tax return is what will be used.

      Self-employed folks have to use taxable income, not gross income. W2 employees are allowed to use gross income before taxes. It’s kind of messed up, but that’s the way it works. It’s primarily to avoid tax liens, which move into first lien position in front of a mortgage loan.

      The nature of your questions also makes me feel like your loan officer may not be very experienced. If you’re not 100% committed to them, I can introduce you to someone that I know and trust for a second opinion.

      I might be reading too much into this, but if you would like an introduction, shoot me an email to scott@findmywayhome.com and let me know what State you’re buying in?

      Finally, my last thought here is that if you do not keep a balance in that business account, there may be questions about where the money came from if all of a sudden you have a bunch of deposits and a balance. Be prepared to show invoices or work orders to document the paper trail of payment received for work done.

      Does this help?

  • Sara says:

    I am giving a gift to a friend for a home loan. It will be $3200 dollars and coming from my savings which has around $5200. All of the money for the gift was transferred from my checking to my savings within the last month and I gave the mortgage company permission to check my savings. Will they question where the money comes from and want to also look at my checking? Is 5200 enough for a 3200 gift to qualify?

    • Scott Schang says:

      Hi Sara, the documentation of the gift funds will vary depending on what kind of loan your friend is using. Typically, transfers made in the past 30 days will need to be sourced and seasoned. While there is not a black and white answer here, my opinion is that you may need to show that you had the money in your checking account to transfer.

      Maybe a bigger challenge may be the lender believing that this is a gift, with no expectation of repayment. Your friend is not allowed to pay you back or it will not be considered a gift.

      I guess I only bring this up to prepare you to defend the fact that your relationship is so close to the buyer that you would give them most of the money you have in your accounts as a gift.

      The best advice I could give your friend is to push this with their loan officer. If they are not going to accept the source of gift funds, you want to know now, and not when they are trying to get to the closing table.

      I hope this helps?

  • Amanda says:

    I had a credit card that went to collections fall of my credit report. Even though it fell off I am still making payments to it. My credit is excellent now but I am afraid that the underwriter will deny any mortgage loan due to the cleared checks to the collection agency. There is no way I can finish paying the old debt before going after a mortgage loan next year. Would this keep me from getting the loan cleared?

    • Scott Schang says:

      Hi Amanda, this is a really good question, thank you for asking. You’re really talking about two different things potentially.

      First, when the collection fell off your credit, it more or less does “disappear” from the underwriting analysis. It is highly unlikely that your payment arrangement will ever come up. It is also not common practice for an underwriter to examine your bank statements to see who you are paying.

      Now, if you really wanted to get in front of this, you can tell your loan officer about your payment arrangement and they can add that payment to your debt to income calculation. That’s the worst thing that can happen here.

      If your monthly payment is $25 – You add that $25 to your other debt that shows up on the credit report when calculating your debt to income ratio.

      The only other thing I can think that could cause a challenge is if you are applying for a refinance, and there is a lien against your property from the collection company. If that doesn’t exist, you’re in the clear.

      If the underwriter does give you any push back, I would get a second opinion from a loan officer that will make sure this doesn’t become an issue.

      If you would like a second opinion, you can email me directly at scott@findmywayhome.com and let me know what State you’re in.

      Hope this helps?

  • Candace says:

    Hi Scott,
    I am getting an FHA loan with down payment assistance. Reserved funds were needed and I got a gift of $1000. Because of the earnest money we put down for the house at the beginning, we only need about $400 at the closing table. I received this gift and it was put into my bank account, after that was done the mortgage company told me they want the $1000 gift made out to the title company instead. We only owe the $400 at closing so why would it be necessary to take out the $1000 and gift it to the title company instead of taking out a money order for the amount owed. Why are they insisting that we give them $1000 and reimburse us the rest instead of excepting only what’s owed?

    • Scott Schang says:

      Hi Candace,
      There may be some miscommunication here, but they are not asking you to do anything unusual.  You may reduce the need to document where the money came from, show it being deposited in your account, and document the money being taken out to cover closing costs. 

      This shouldn’t be a deal-breaker, but it might require more documentation from you if you bring a cashier’s check to escrow.
      Also, even though your paperwork says $400, that number if very likely to change.  T

      he escrow company will only use the money required to close the transaction, then you will receive a check from escrow for the difference.

      Does this make sense?