Mortgage lenders are tasked to evaluate your ability to finance a home based upon your income, current credit obligations and assets. Your income lets lenders give you an idea of how much you can qualify for. This is performed by taking a percentage of your gross monthly income and setting aside that amount for your housing payment. 

This qualifying payment will include not just the principal and interest payment but also an allotment for property taxes and insurance. Common guidelines suggest the housing payment be somewhere around one-third of gross monthly income. Another ratio is typically evaluated and that ratio includes not just the housing payment but also monthly credit obligations such as a car payment or credit card. Sometimes this second ratio is referred to as the ‘back’ or ‘back end’ ratio. Someone might be able to easily afford the house payment but sometimes too many additional credit payments push them out of the price range they’re looking for.

But what about assets? What about bank statements? What do lenders look for when looking at  your bank statements, at least the account(s) being used for your down payment, closing costs and a little bit of leftover moolah. (not sure I’ve ever used ‘moolah’ in an article before, but there, I did it)

Of course lenders want to make sure there are enough funds to cover the transaction. Not just an amount for your down payment but also to take care of associated closing costs. In addition, the ‘leftover moolah’ is referred to as ‘cash reserves.’ Cash reserves are those amounts equal to two or three months total housing payments, depending upon the program. Lenders want to make sure you’re not completely broke after you sign your settlement papers.

Lenders will also match up what  your monthly paycheck stubs show compared to what is being deposited in your account. If you get paid on the 1st and 15th, lenders want to see matching deposits in your bank account on or around those dates. Are there other deposits showing up that don’t match a payday? The lender might not be able to have those funds counted as available funds to head to the closing table. 

Are the additional funds somewhat substantial? If so, where did they come from? Maybe this is a short term loan from someone that expects to be paid back. That's considered a credit obligation by the way but more importantly, the funds must come from an acceptable source. Financial gift from a relative? Fine. Your lender will help document those funds as a gift and not a loan. If the deposit amounts are fairly minor, the lender will simply ignore them.