Before the bank will foot the bill for a house, buyers will have to get past one very important person – the loan officer. This person is in charge of ensuring only financially stable people get a loan. To make this determination, they look at financial data like money for a down payment and closing costs, and whether or not buyers are able to regularly make their monthly payments. A lot of this work is done by reviewing bank statements, which is why it’s so important to get financial records in order before submitting a loan application.
Unexplained Large Deposits
Loan officers will check to see if there are any large deposits to your bank account that may seem irregular. While they won’t hold a sudden windfall of cash against a buyer, having multiple and sporadic large deposits can raise some red flags because it can suggest the money is coming from less than legitimate sources. If for some reason a buyer’s financial history has a lot of sudden spikes, it’s a good idea to have a good explanation ready.
Buyers will normally have to submit two months of bank statements with their application. If those statements are riddled with overdraft charges, lenders won’t be happy. This can be a sign a buyer doesn’t know how to manage their money well.
Another red flag that may get raised is personal loans from family or friends. If loan officers see the same amount of money going to the same person every month it can be interpreted as a non-disclosed loan. A common example is a home buyer getting a loan from their parents to buy a car or help pay for school.
If any of these red flags apply to you, don’t worry too much. In most cases, these issues won’t constitute an automatic rejection, but you might have to produce more financial records to appease the loan officer.