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Bank statements reviewed for closing costs and reserves at closing table

Do Lenders Check Bank Statements Before Closing?

Do Lenders Check Bank Statements Before Closing?

Yes, they do.

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.

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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.

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?


What Do Underwriters Look For in Bank Statements

Many people wonder what mortgage lenders look for in the bank statements they request.

Generally, they are looking for unusual deposits, sources of funds and reserves. I’ll explain each of them below.

Simply having money in your bank when you’re at the closing table is not enough.  The underwriter will review your bank statements, look for unusual deposits, and 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.

How Many Months of Bank Statements Do Mortgage Lenders Require?

Lenders typically request two months of statements for each of your bank, brokerage, and investment accounts in order to qualify for a mortgage.

Deposits made into your accounts prior to the most recent two months’ asset statements are considered seasoned and generally do not have to be provided in order to qualify for a mortgage.  The seasoning requirement for most lenders is typically statements covering the most recent 60 days prior to closing.

They’re looking for where the cash came from, to determine whether you have received a gift or some other factor that will make you look good at that point in time but won’t be available in the future to help you make your required mortgage payments.

The source of your funds is not necessarily where the funds are transferred from a savings account into a checking account, but they will look for more verification that the funds have been in your account, and can be documented on the most recent two months’ statements.

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 (homeowners 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.

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 or FHA loans for tri-plex and four-plex properties, and most Conventional, Jumbo, and Portfolio Loans.

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 accounts (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.

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 by a close family member like a mother, father, sister, or brother.

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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.

Frequently Asked Questions

Is It OK To Move Money From Savings To Checking Before Closing?

Generally, moving money from savings into checking, so you can have the cash available to write a check to close on your house, is not considered a problem. Your lender may wish to see a few additional months of statements on your savings account to verify the source of that money prior to the move.

How Many Bank Statements Will Be Required For Mortgage Approval?

Most lenders will request 2 months of statements for each of your bank, retirement, and investment accounts, though they may request more months if they have questions.

Why Do Lenders Need Bank Statements?

One of the things a lender looks for before approving a loan is your overall financial situation and reserves. They’re looking to see how much money you would have available to be able to make your mortgage payment in case of hard times like losing your job, being unable to work due to injury or sickness, etc. without having to sell assets. Reviewing all your bank, retirement, and investment account statements enables them to see how large of a reserve you have on hand.

They are also looking for “sources of funds” wanting to make sure that deposits into your accounts can be reasonably explained. Basically, they are checking to see if you have received gifts of money that make your finances look better than they actually are in the long term.

Should I be worried about underwriting?

Generally, no. As long as you’ve been honest in filling out your mortgage loan application, you have good credit, you don’t have a lot of outstanding loans, and you haven’t received gifts to fund your downpayment, the underwriting process is not that difficult. 

That said, your mortgage lender will request a number of pieces of documentation as part of their review of your application. Among other things, they will routinely ask for (don’t worry, they ask these of everyone who applies for a mortgage loan:

  • 2 months of statements from each of your bank accounts, investment accounts, and brokerage accounts
  • Your most recent pay stubs
  • A year or two of your tax returns, including your W-2 forms
  • Explanation and proof of sources of income if you have any self-employment or gig income

What Does An Underwriter Look For?

The primary things an underwriter is looking for when you apply for a mortgage loan are your:

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  • Income level and consistency of income
  • Your debts and monthly expenses
  • Whether you have sufficient cash to pay for your down payment and closing costs
  • Whether you have reserves sufficient to pay several months of mortgage payments in case you lose your income 
  • Your credit history
  • The source of any major deposits into your accounts to ensure that you haven’t received gifts to fund your down payment

What bank statements are required for a mortgage?

A mortgage lender will request at least two months of bank statements for:

  • Your checking account(s)
  • Your savings account(s)
  • Your investment account(s)
  • Your retirement (401(k)) account(s), IRA’s, 403(b) account(s) etc.
  • Your brokerage account(s)
  • Your credit card statements
  • Your loan statements

What is a large deposit letter of explanation?

If your mortgage lender sees a large deposit in your accounts, they may ask for a large deposit letter of explanation. Don’t panic, this is normal. They will usually explain what they’re looking for in that letter of explanation, but basically, it should explain the facts. For example, you sold a car, and this was the deposit of the proceeds.

If the deposit was a gift, you should provide a signed letter from the person who gave you that gift, stating that it was a gift and they do not expect to receive repayment. 

Have Questions About Bank Statements Or Other Mortgage Issues?

We’d like to help. You can Ask Your Question here, and we will connect you with a Mortgage Expert in your area that can help.

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

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  • Jay says:

    Hello Scott, I have 2 questions.

    I have a W-2 job and get non taxable checks ($1000 a month) from my work – it is basically reimbursement for my food and gas/transportation, and phone bills. Would it not look good on my bank statement?

    Also do I need to disclose all bank accounts’ statements? I have a Chase account with the funds ready for the entire downpayment 100k, and I have Wells Fargo account which will not be used for downpayment. Do I need to disclose the Wells Fargo statements as well?

    Thank you!

    • Scott Schang says:

      Hi Jay, really good questions! Let’s tackle the first one. The real question here is whether or not the reimbursement needs to be used as “income” to help you qualify for the loan amount you are applying for. If the $1,000 needs to be factored in to increase your income for qualifying purposes, it’s going to open up a small can of worms. A manageable can, but a can of worms just the same.

      You would most likely need to refer to documentation provided by your employer that states that this is typical of your job position and that it is a guaranteed reimbursement. You would also have to show that you have a history of receiving this additional income (reimbursement), most likely a 2 year history will be required. Your employer would also need to indicate that it will continue into the future.

      Once it is established that you CAN use the reimbursement as income, it would most likely be averaged over a 24 month period.

      Now, there are a couple of ways around this potentially. One way is if you do not need the $1,000 a month to qualify for the loan amount you are applying for. The second way is to use the income from your tax returns (which may be required anyhow) and use your “after tax” income for qualifying as opposed to your W2 income.

      So, a few moving parts. A few things to untangle, but not a deal killer.

      Now, about the bank statements. You only need to use bank statements to show source and seasoning of funds required to meet the underwriting requirements for the loan. You need to show that you have enough money for the down payment and closing costs in your account for 60 days prior to application.

      If the Chase statements meet that requirement, you would not need to introduce the Wells Fargo account. An example of what would require you to provide the Wells statements would be if you transferred money from the Wells account to the Chase account within the past 60 days and it shows up on the Chase statement that you submitted as proof of funds to close.

      At the end of the day, you need an experienced loan officer here. An online lender or call center lender like Rocket mortgage wouldn’t have a clue here and would most likely not get you to the finish line.

      You can either click on the Expert Network link on the site, or if you have further questions, you can email me directly at scott@findmywayhome.com and let me know what State you’re in. You just need an experienced professional to explore all of these options and answer all of your questions before you get too far into the approval process.

      I hope this helps?

      • Jay says:

        Thank you so much for your kind answer Scott!

        1. I’m not using the $1000 reimbursement for the downpayment. And it’s not considered as income to be qualified to get the mortgage loan. So I was thinking to deposit it to Wells fargo account until closing to avoid any problems.

        2. I already transferred all assets for downpayment and closing fee to Chase account – before 60 days.

        In this case, I do not need to provide Wells fargo’s statement – and I am good to go, right?

        • Scott Schang says:

          You should be fine. If there is documentation of that reimbursement on your regular pay check stub, it may raise questions. But if you don’t need that income to qualify, it shouldn’t matter.

          Sounds like you’re in good shape. If the loan officer and lender know what they’re doing, you shouldn’t have any issues!

  • Mike says:

    My situation is that my mom made a payment for me on my credit card. Does she have to provide a statement for that? She would rather not provide a bank statement for a small credit card payment. Is that mandatory? It will have been 90 days or more since the payment when we get to closing. Thanks.

    • Scott Schang says:

      Hi Mike, the only reason an underwriter is looking at your bank statements is to make sure there are no large, unusual deposits in the past 60 days (2 statements). If you mom made a payment on your credit card, that would not show up anywhere, and your mom should not be asked to provide any documentation. It should not even come up.

      If there is more to this, you can email me directly at scott@findmywayhome.com with more details.

      Hope this helps?

  • Charlotte says:

    Hi Scott, first of all I’d like to thank you for being available to help so many people with lending and homeowner questions, this really means a lot!! My question is my husband and I have been pre approved for an FHA mortgage loan and were in the house hunting phase still, but he will be the only one on the loan but both of us on the deed, we both work but I just recently got a small personal loan to do debt consolidation, his name isn’t anywhere on that loan but since we have a joined bank account that it was deposited into would they question that since our seasoned money for closing and etc has been in there for a while now(longer than the 2 months)?? Thank you in advance!! Hopefully this question doesn’t sound silly!!!!

    • Scott Schang says:

      Hi Charlotte! This is not a silly question at all, and it comes up quite often.

      It sounds like you will be ok. As long as you have enough sourced and seasoned funds in your bank account for 60 days (that’s the seasoning part) the deposit of the personal loan will not impact your ability to qualify.

      However, the payment associated with that loan may impact your approval. Let me explain.

      FHA requires that the debts of both spouses be included in the debt to income (DTI) ratio even if only one of you is on the loan. If the loan and payment appear on your credit report, the payment will be included in the debt to income ratio. If it is not showing up on your credit report, the underwriter may question the source of the deposit and the terms of the loan.

      You should be ok. Overdrafts will not be an issue, especially if they happened more than 2 months ago – they will not appear on the last 2 bank statements that you are being asked to provide.

      It sounds to me like you’re going to be fine. Hope this helps?