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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.

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About Your Expert

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

  • Nita says:

    Hi Scott,

    I have a personal loan with a balance of $7500 with less than 3 years left. I’m a first time home buyer and my ratios are pretty high so this loan payment is standing in the way. I’ve been making double payments to pay it off sooner, but I found a home I really like so I’m trying to see if I can make it work now.
    I’m not sure how to word this question so please bear with me..
    Is there a cut off point, when underwriters stop including a debt in the ratios because the balance is almost paid off? Like a dollar amount or number of months left on the loan? For example, if I bring the balance down and only have a year of payments left to make, will they exclude it from the ratios? Or if the balance is at a certain dollar amount will they exclude it? This there a rule if thumb for this kind of scenario?

    Thank you

  • Cherie says:

    Hi Scott,

    Great information! I have a few questions sort of rolled into one:
    I started credit repair journey back in March of this year. I’ve made several mistakes when I was younger but I have been busting my hump to correct.them. My score at the time was in the low 500s. A mortgage broker I was working with told me I needed to pay off collections accounts in order to improve my score. I did this and my score took a 90-point drop once all the collections accounts were reported as closed and paid. What the broker DIDN’T tell me was paying off collections severely hurts your score and the collections agencies don’t have to delete the account from your credit report, which is really the only thing that would have helped me. I’ve slowly been recovering and making sure my bills have all been paid on time, and my score is now up by 160 points in an eight monthperiod. I know I still have a ways to go, as I was told I need a minimum score of 580-620 for a FHA, but I’m very proud of myself so far.

    Now, in the midst of this, just when I think I’m making headway, two more old accounts pop up as collections. I know what the lenders are going to tell me. But I’m going to be right back where I started and I’ve worked so hard it is hard for me to not get discouraged. What do I do? One account is almost a year old (report date) and the other about 3 months. Do I try and focus my efforts on removing the newer one and leave the older one alone as it would have less of an impact?

    My next question, is the reason I’ve been pushing so hard on this is because my goal is to purchase my family home with an FHA loan. My parent who owns the home is willing to gift enough equity to me that would cover the minimum required down payment, closing and escrow. Do I still need to have a few months expenses saved on my own in addition to what’s being gifted to me? I currently make about 65k/year and I am the only one to be on the loan.

    • Scott Schang says:

      Hi Cherie,

      Oh man, that really sucks about the collections activity. I would never have advised that you touch those. That’s actually what probably triggered the other collections to pop up. Don’t focus on those. Leave them alone.

      The single most important thing you can do is to have 2 to 3 revolving credit lines (credit cards) and pay the balance down to zero! DO NOT close any credit cards. Finally, don’t miss any payments moving forward.

      That alone will help your score increase fastest.

      FHA can actually be done with a pretty low credit score, and your parents can also gift you enough equity to get a loan approval most likely. I don’t what the sales price is or what your other debts look like, but it really sounds to be like you’re close if you are working with the right lender.

      I want you to get a second opinion from a loan officer that I know and trust. Can you shoot me an email to scott@findmywayhome.com and let me know what State you’re buying in and the address of the property?

      Again, I think you’re close. The fact that you’re buying from your parents also opens up additional options that might make qualifying easier.

      Hope this helps?

  • Lynn says:

    Hi Scott my husband and I are purchasing our first home when we initially applied for the mortgage we had about 12 grand saved up, now about 4 months later and near closing we do not have that amount anymore. My husband will use funds from 401k to cover down payment and closing cost. Will this be an issue?

    • Scott Schang says:

      Hi Lynn, thank you for the great question! Funds from a 401k are an acceptable source for down payment and closing costs. The only challenge you may have is if your approval was based on having a certain amount of money in the bank, and now that money is coming from a previously undisclosed source.

      You will have to provide the paper trail of where the money came from to be able to use it for qualifying. Not a big deal at all and just might add a little extra paperwork if the account was not previously disclosed or considered with your approval.

      Should be perfectly fine. If you lack confidence in your loan officer for any reason and want a second opinion, let me know and I can introduce you someone I know and trust.

      Hope this helsp?

  • Jeana eda says:

    Hello, I was wondering, I am first time buyer and I just filled out the lenders application. He is wanting bank account numbers and amounts. Why would he need the Amounts in bank accounts? One of the bank accounts is for my retirement in a personnal checking account. It is the account with the most money, because I was involved in a car accident in which I was awarded no-fault funds. The money has been in my account for a while now, at least over 3 or more months. However this was the second part of the funds, the first part of the funds was over 6 months, and that was used to help my kids on some of their bills, I knew I could use the first part of it to help them, knowing I was getting a second part via my own car insurance since the inital funds were not making me whole in my outcome. I have been paying my college and car and insurance payment without fail, no missed payments whatsoever! I work and pay my bills, I am very responsible. My concern is… is it okay, to give my bank account numbers AND my BALANCES? TO EACH OF THEM! Thank you Jeana

    • Scott Schang says:

      Hi Jeana, there are two reasons why the lender is asking for your bank accounts and balances. The first reason is just to prove that you have money available for down payment and closing costs. The second reason is to add compensating factors to strengthen the file. When you apply for a home loan, there isn’t one specific thing that the lender looks at. They will look at your income, your liabilities (from credit report), your debt to income ratios, your credit score, your employment history, and how much money you have saved “in case of emergency” – in lender speak, this is your reserves.

      By providing all of your accounts it can only help you, and would not hurt your file or infringe on your privacy in any way.

      If you are uncertain about your loan officer and would like a second opinion, I have happy to introduce you to someone that I know and trust. If you would like a second opinion, just shoot me an email to scott@findmywayhome.com and let me know what State you’re buying in?

      Hope this helps!

  • Amy Cole says:

    Bank statements, I have monthly deposit of cash on my bank statement and the underwriters wants to know where I got the money. Secondly, my brother owes me some money ( loan), nothing in writing mails me cash…. how do I explain this . to show for the money.

    • Scott Schang says:

      Hi Amy, this is not unusual at all. The underwriter could be asking about the deposits for a couple of different reasons. They may just need an explanation for the file, or, if you are required to show a certain balance in your account, and those cash deposits make up part of that required balance, that money needs to be “sourced and seasoned”. This just means that you have to prove that you have history of receiving the payments. Seasoned means that the money needs to have been in your account for 60 days – meaning you cannot show unsourced deposits within the past 60 days. As far as the money you get from your brother, are you trying to use that money as income for qualifying?

      I have more questions than answers about your situation. If you would like, can you shoot me an email to scott@findmywayhome.com, and let me know what State you’re in? I’m more than happy to offer as second opinion.

      My primary questions is the underwriter concerned about your bank account balance, or your income streams, or both?

      I hope this helps?

  • Minnie says:

    I’m closing on my FHA home in a day, my bank account was compromised due to spoofing can I close that account and open a new bank account

    • Scott Schang says:

      Hi Minnie, discuss this with your loan officer or underwriter before you do anything. It’s always best to NOT do anything financially until after the loan closes. If the spoofing caused issues that would prevent your loan from closing, you would want to resolve it per the specific instructions of the underwriter.

      You have 2 things you have to deal with here. First is closing your FHA loan. Follow the instructions of the lender for this piece. The second issue is the legal issue of being spoofed. Close your mortgage first, then work on pursuing and resolving any legal avenues for preserving your good standing with the bank.

      Hope this helps?

  • Don says:

    Hi Scott,
    I have a couple questions I hope you can help me with…I have several twists that I think I understand from reading your posts, however, a new one is thrown in to boot. First, I have a Chapter 7 bankruptcy. It is now 4 years past discharge and I’m looking for a conventional (Fannie Mae) mortgage due to also have a large student loan, which is manageable based on the Income based payment on my credit report. Here’s where things get stickier…I took a new job at a university in April, 2017 (however, same type of work as previous 5 years). The day that I was supposed to move to my new town and job, I was in a severe auto accident. Six months later, the job is being held for me at an annual income of 64K. However, my income for the past 6 months has been wage loss benefit from my auto insurance company. I have verifiable proof for all of this? I’m trying to buy a house in Muncie, IN, as I can’t find a suitable rental there. Can the wage-loss income be included (it is beased on 85% of my 64K salary). Note, i have an accepted and updated employment letter, but have not started the job, yet. If so, do have a suggestion for a mortgage person I can work with?

    • Scott Schang says:

      Hi Don,
      I think there’s a path here, and you’re right, there are several twists here that makes your situation complex…but possible.

      You’re basically dealing with 3 separate “complex” issues. First is the BK7 – it sounds like if you’re 4 years from discharge that you’ve met that timeline. Was there a mortgage included in the bankruptcy? If so, what happened to that loan?

      Second issues is IBR student loan payment, which you’re also correct on, Fannie Mae or Freddie Mac conventional will allow you to use the income based payment to qualify.

      Last hurdle is your temporary leave income. Your timing is good on this question because I just wrote a detailed article about how to qualify for conventional financing using temporary income.

      Here is the link to this article – https://www.findmywayhome.com/insights/temporary-leave/

      Your situation is complex. It’s important that you work with someone with expertise and experience with these guidelines. I have a very experienced lender friend that can help in IN.

      If you would like a second opinion, I’m happy to make an introduction! Shoot me an email with your contact info to scott@findmywayhome.com and I can get you pointed in the right direction.

      Hope this helps?