Simply put, the bank wants to confirm that you have enough money to close on the house and that you have not borrowed the money for the down payment. Borrowed money, by definition, means an obligation to repay funds. If this obligation is not disclosed to the underwriter then you would have closed under false pretenses. Obviously, information that may affect the integrity of the file is critical for underwriting to review. This is due to the bank continuously trying to reduce the risk of a foreclosure on all their loans. For this reason, the bank will generally ask for one or two months of bank statements on all your asset accounts. This is so the bank can review the statements to see not only that the funds are there, but that there are also no large deposits in the accounts that may represent a loan of one form or another.
Do Recent Deposits Count Towards My Assets?
Some banks, upon spotting a large deposit in your account, may “back it out” or subtract it from your total assets if there is enough extra money in your accounts to qualify you. In this way, they will avoid questioning the deposit and making you source it. Your best bet though is not to count on this going in. Make sure that you review your bank statements. If you will have a hard time getting in writing the source of large deposits, then hold off on applying until those bank statements are more than two months old.
Assets and Monthly Expenses
In addition to the assets that you need to have for your down payment, the bank also does not want you to close pennilessly. They will usually request that you show a minimum of two months of mortgage payment reserves in your accounts at the time you close. Simply put, they will take your total of principal, interest, taxes, insurance, and applicable monthly HOA fees and multiply by two. This will usually be required to be shown in addition to the money for your closing costs and down payment. The good news is that this reserve money can normally be in the form of a non-liquid account like an IRA or 401K. Check with your local bank to see their individual requirements on reserves.
One of the biggest issues to come up with bank statements involves the self-employed borrower who has separate business accounts. If you are self-employed, make sure that you transfer any money that you will need for closing from your business account to your personal account at least 90 days prior to applying for your mortgage. The reason is that the lender will always assume that the money in the business account belongs to the business and they will want assurance that any money taken from these accounts will not affect the integrity of the business. This usually involves a letter from your accountant. You are much better off just having the assets already sitting in your personal accounts prior to application to avoid the headaches.