Do Lenders Check Bank Statements Before Closing?

When applying for a loan, particularly a mortgage, lenders conduct a thorough review of an applicant’s financial standing. A common and integral part of this process involves scrutinizing bank statements, not just at the initial application stage but often again shortly before closing. This comprehensive examination helps lenders assess a borrower’s financial health and their ability to fulfill the financial obligations of the loan.

The Purpose of Bank Statement Review

Lenders examine bank statements to understand an applicant’s financial behavior and repayment capacity. A primary objective is to verify the availability of funds for the down payment and associated closing costs, ensuring these amounts are readily accessible. This includes confirming that funds have been “seasoned,” meaning they have resided in the account for a sufficient period, typically at least 60 days, to demonstrate stability and legitimate origin.

Beyond initial costs, lenders also confirm that borrowers will have sufficient reserves, often requiring enough liquid assets to cover a few months of mortgage payments after closing. The review also serves to assess overall financial stability and responsible money management. For self-employed individuals or those with irregular income, bank statements are especially important as they provide a detailed view of actual cash flow over time, which traditional income documents may not fully capture.

Bank statements help identify any unusual or suspicious activity. This includes large, unexplained deposits, frequent overdrafts, or regular payments that do not appear on credit reports. Lenders also perform these checks as part of their due diligence and anti-money laundering (AML) compliance.

When and How Lenders Review Bank Statements

Lenders integrate bank statement reviews at several stages throughout the loan application process. Initially, statements are requested during the pre-qualification or pre-approval phase to verify financial information and assess borrowing power. A more thorough review occurs during the underwriting process to determine final loan approval.

A final verification is common shortly before closing. This check ensures no significant financial changes have occurred since the initial assessment that could impact repayment ability. Lenders require bank statements covering the most recent two to three months, though some may request up to six months, or even 12 to 24 months for self-employed applicants. These requests extend to all accounts holding funds for the loan, including checking, savings, and investment accounts.

The review process involves lenders requiring official bank statements that display the applicant’s name, account number, and a detailed record of all transactions. Lenders may conduct manual reviews or utilize automated systems for efficiency. In some cases, they might also contact the applicant’s bank directly to verify the authenticity of the information provided.

Managing Your Bank Accounts During the Loan Process

Borrowers should maintain stable financial habits from application until closing. Avoid making large or unusual deposits that cannot be easily explained or documented. Unexplained deposits, especially those representing a significant percentage of typical income, can raise red flags and delay the process as lenders will require detailed documentation of their source, such as cancelled checks, proof of sale, or a signed gift letter if the funds were a gift. Funds received as gifts for a down payment are generally permissible, but lenders require a gift letter from the donor stating the money is not a loan and detailing the relationship, along with a statement from the donor’s account showing the transfer.

Borrowers should also refrain from making large withdrawals or transferring substantial amounts of money between accounts, particularly if these funds are designated for the down payment or reserves. These actions can deplete necessary funds and prompt additional scrutiny from lenders, potentially delaying closing. It is also advisable to maintain consistent account balances and avoid frequent overdrafts, as these indicate financial instability and can negatively impact the lender’s confidence in repayment ability.

During the loan process, avoid opening new credit accounts, taking out new loans, or co-signing for others, as these can alter your debt-to-income ratio and negatively impact your credit score. Similarly, defer large purchases, such as a new car or furniture, until after the loan has closed, as these can reduce available assets or increase debt. If any unusual financial activity occurs or you anticipate a change in your financial situation, proactive communication with your loan officer is important to address potential concerns and provide necessary documentation.