How an underwriter looks at your bank statements

by Tim Swierczek on March 14, 2011

As a mort­gage appli­cant, why should you care about non-payroll deposits?  Well because your under­writer does.

Tra­di­tional Bank State­ment Underwriting

Up until early 2010 under­writ­ers rarely scru­ti­nized trans­ac­tions on bank state­ments.  Gen­er­ally speak­ing, bank state­ments were col­lected to show the appli­cant had enough money in the bank for a long enough time to meet the pro­gram require­ments. In the busi­ness we call that sourced & sea­soned funds.  The source is what bank account they came from the sea­son­ing is they the funds were in the appli­cants account long enough.

Usu­ally, the money was for a down pay­ment, but some­times loan pro­grams require that you have sev­eral months of your hous­ing pay­ment in the bank after clos­ing.  If you sat­is­fied the under­writer that you had enough money, they also needed to know that you didn’t just deposit the money oth­er­wise, it’s pos­si­ble the money wasn’t really yours, so they would make sure your bal­ance con­sis­tently showed enough money over a two month period.

If an under­writer was con­tent with your source & sea­son­ing then they would sim­ply make sure that you didn’t have overdrafts.

Cur­rent Bank State­ment Underwriting

Until early 2010, when under­writ­ing started to request expla­na­tions for deposits that were irreg­u­lar.  At first, the scrutiny was only on deposits that were large and large depended on the opin­ion of the under­writer.  I would say that usu­ally meant the deposit had to be over $250, if there were not many deposits and they were mostly small.  If a per­son had lots of $200–300 deposits they may focus on the ones that stood out and were $400 or more.

By the end of the year, those requests had got­ten more and more com­mon, until we got to the point that really any non-payroll related deposit is ques­tioned.  And until you begin to look you would prob­a­bly be sur­prised at how many non-payroll related deposits you have.  Now that I look for it, it seems that the major­ity of bor­row­ers have one to two non-payroll deposits over a two month period and that is if they are not self employed.  Many who work home based busi­nesses have one a week or more.

Ways to prepare

Given this is an across the board require­ment regard­less of lender, loan type, credit score, or any other fac­tor I can think of, you should know what expla­na­tion and doc­u­men­ta­tion is expected.  First, write a sim­ple to the point let­ter that explains how the source of the money and why it was given to you.

Some­thing sim­ple like, the deposit made March 13th for $130 was gift money received at my birth­day party on March 7th.   The other deposit of $421.83 was an expense reim­burse­ment for a recent busi­ness trip.”

Then to the best of your abil­ity you should pro­vide doc­u­men­ta­tion to sup­port your claim.  For the birth­day money you’re going to be ok with the let­ter as long as your birth­day is March 7th.  With the expense reim­burse­ment you will need some proof.  Your com­pany will have an expense report of file and pos­si­bly copies of the receipts.  That will do.

Bet­ter Yet

An even bet­ter idea is to avoid deposit­ing any non-payroll funds from now until you close on your mort­gage.  Instead you can cash that birth­day money and spend that on gro­ceries or eat­ing out and save your check­ing account for what­ever else you were going to buy with the birth­day money.  If you do it will make your life eas­ier.  Either way, if you’re expect­ing to get a mort­gage in the near future take a look at your bank state­ments with the eyes of an under­writer and start doc­u­ment­ing any­thing that doesn’t look normal.

Tim Swier­czek, MMS

NMLS# 103522

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