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How Far Back Do Mortgage Lenders Look at Bank Statements
When you apply for a mortgage, your lender will ask for financial records to prove your ability to pay back the loan. One of the essential documents required is bank statements. Lenders examine these records to determine your spending habits, account balances, and more. But how far back do lenders look at bank statements? In this article, we’ll explore the answer to that question and provide you with some tips to help you prepare for a mortgage application.
Before jumping straight into the topic of how far back lenders look at bank statements, it’s crucial to understand why they need these records in the first place. Essentially, your lender wants to ensure that you are financially responsible and can afford the mortgage payments.
What Do Lenders Look For?
When reviewing your bank statements, lenders look for specific details to determine your eligibility. The lender will analyze your bank statements to determine your income, as well as your spending habits. This includes different types of transactions, such as deposits, withdrawals, and transfers. Factors they might consider include:
- Your average account balance
- The number of overdrafts you’ve had in the past few months
- Your debt-to-income ratio (DTI)
- Regular monthly expenses such as rent, utilities, car payments, etc.
How Far Back Do Lenders Look at Bank Statements?
The short answer: lenders usually look back at the past two to three months of bank statements. However, this can vary from lender to lender. Some may request your bank statements covering six months, while others may ask for just one month’s worth. For self-employed borrowers, a lender may require a full year or more of bank statements to examine their income.
The reason lenders usually look back at two to three months of bank statements is to check if there are any red flags, such as abnormal activity or potentially fraudulent transactions. They may also want to see your current account balances and confirm your source of income.
Why Is It Important to Keep Clean Bank Statements?
Keeping clean and accurate bank statements will increase your chances of being approved for a mortgage. It’s essential to avoid overdrafts, bounced checks, large cash deposits, or suspicious transfers, as they can raise suspicion with lenders. If a lender identifies any issues in your bank statements, it could lead to denial of your mortgage application. Therefore, it’s crucial to keep clean and accurate records of your finances, especially as you approach the time when you’ll start looking for a mortgage.
Tips for Keeping Your Bank Statements Clean
Here are some tips to help you keep your bank statements clean:
- Keep a record of large deposits with an explanation of where the money came from.
- Try to avoid withdrawing cash and carrying large sums of money around.
- Avoid spending money on non-essential items, especially during the months leading up to a mortgage application.
- Avoid bouncing checks by ensuring that you have enough funds in your account before writing any.
- If you have multiple bank accounts, avoid transferring money between them frequently
Bank statements are an essential component of your mortgage application, and keeping your financial records clean and accurate is vital. While the lender will usually review bank statements from the past two to three months, this can vary depending on the lender’s requirements. By understanding how far back lenders look at bank statements and following our tips, you can increase your chances of getting approved for a mortgage. If you’re in doubt and have questions about the mortgage application process, speak to a reputable mortgage professional for guidance.
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