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Michaela Phillips, Guaranteed Rate, Inc.
Michaela Phillips, Guaranteed Rate, Inc.

Preparing to buy a home in the upcoming months? Once your credit score is solid and you’ve set aside a down payment, it’s time to start gathering documents for your lender. Bank statements are among the most important documentation you’ll need in order to be approved for a loan. Most lenders require a minimum of two consecutive months of bank statements for asset verification. If you’re curious what lenders evaluate from your bank statements, here’s what you need to know:

Why Lenders Need Bank Statements

Buying a home is a significant investment, and lenders need to be sure that you have the funds needed to cover the down payment, closing costs, and monthly payments. They’ll also need to know the source of the income and review your bank statements for unusually large deposits.

What They’ll Review

Lenders need access to borrowers’ bank statements in order to verify financial readiness and proof of income. They’ll examine your bank statement to determine that you receive consistent and predictable income from your employer and that you have enough funds to cover bills. If you’re self-employed, you’ll need to provide tax returns in addition to your bank statements. While the odd nonsufficient funds notice generally isn’t a problem, regularly having payments returned is a red flag.

Additionally, lenders will keep an eye out for large deposits that occurred within the last two statement cycles. You’ll want to avoid making a large deposit (often considered 25% or more of your typical paycheck) in the two months leading up to sending bank statements to your lender. If your bank statements show a large deposit, be prepared to submit proof of where this income came from. Most lenders allow gift funds to be used toward the down payment, but you’ll need a letter from the gift giver showing that the funds won’t need to be paid back.

When you’re ready to buy a home, it’s critical to be mindful of your spending habits and be sure that you have enough money in the bank to cover all the necessary expenses. Having documentation on your side is always advised, especially if you’re using gift money toward your down payment. Since interest rates are still at a historic low, it’s an excellent time to consider becoming a homeowner.

By Michaela Phillips. Michaela is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.443.6292, e-mail michaela.phillips@rate.com or visit michaelaphillips.com. NMLS: 312874.