There are many ways to prepare to buy a home, but a major one is to ensure your finances are completely sound. A lender is going to request many financial documents, one of which will be your bank statements. While it might seem like an insignificant request compared to your taxes or paystubs, your bank statements are vital to get your loan approved. So, what do mortgage lenders review on bank statements?

The simple explanation is that a mortgage lender needs to ensure you have sufficient funds to cover the down payment, closing costs, and some might even want to see if you have enough reserves to cover the first few mortgage payments. It is paramount these funds belong to you and they have been in your account for a while. Underwriters are thoroughly trained to pinpoint all unacceptable sources of funds, hidden debts and other red flags by analyzing your bank statements. Before you begin the homebuying process, it is best to ensure you don’t have anything questionable on your statements that will raise a red flag.

Here are 3 of the most common red flags:

• If you or an automatic payment have withdrawn funds from your account that you did not have, your bank statement will show “NSF” or non-sufficient funds. Having multiple NSF’s on your statements will show a lender that you are not financially responsible, making you a risky borrower. This could lead to your application being declined. The best option is to wait to apply until at least 2 months of recent bank statements are NSF free. If you don’t want to wait, be prepared to explain to your lender why your statement shows NSF, especially if it was not completely your fault. You might have forgotten to transfer funds from your savings to your checking, or maybe there was a problem with your paycheck that was out of your control. Whatever your reason, your lender will need to know.

• It is critical that all the money in your account is completely your own. This means that any additional deposits (not your income), borrowed money, a cash advance, or gifted funds can all raise red flags. Again, if you are flagged, your lender will contact you for explanations of where the funds came from. Borrowing funds to help you with a down payment is fine, but you need to disclose it. If you can’t prove the funds are acceptable, they will be disregarded and won’t be used to help you qualify for the loan. If you know you are going to be receiving a large deposit, let the funds “season” for a couple months, otherwise it will not be considered yours. For example, if you plan on depositing all the money you’ve been storing under your mattress, do so months before you plan on applying for a loan rather than right before.
• Credit reports will account for all your credit cards, student loans, auto loans, and other debt accounts. However, some creditors don’t report if you have a personal or a business loan. If your account shows you are receiving regular payments that are not your income or if there are any irregular activities, these can cause a red flag. No matter what it may be, having a monthly automatic payment of any amount will alert a lender and can cause issues. It is best to disclose all sources of funds or any unusual activity to your lender upfront.

Applying for a loan is not something to take lightly. Your lender is going to inspect your finances to ensure you have the money you say you do, and that the money is really yours. It is best to analyze your finances from the perspective of a lender a few months before applying for a loan to ensure you reduce the risk of having any red flags. This will also give you time to gather the documentation or explanations you might need in case you think something will catch the lender’s eye. Keep it simple both before and during the application process by not adding or taking out any unnecessary funds, and to help ensure you have a smooth experience.

If you have any questions about the home buying process or documentation requirements, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!

Getting ready to meet with a mortgage lender can be exciting; you’re one step closer to the home of your dreams. Don’t let the paperwork put a damper on things! Your lender is there to help you through the homebuying process, so you’ll want to assist them as much as possible. The information lenders ask for is vital to getting the keys to your new home, so it is helpful for you both if you come prepared. These are 5 documents you’ll need to buy a home.

1. Paystubs: Your lender wants to see paystubs, award letters for Social Security, and pensions or retirement from the last 30 days. The paystubs are your proof of current income and allow lenders to get an understanding of how much money you’ll have flowing in each pay period. It also lets them know a little bit about your employer or if you are self-employed.

2. Taxes/W2s: Lenders usually require the past 2 years’ worth of tax information, including returns and W2s This is mostly to let your lender know how much you really made, but it also gives them the chance to compare your numbers. Your lender must be able to verify all the assets you have listed on your application, so all your documents must match.

3. Bank Statements: You should provide your lender with at least 2 months of recent bank statements. They need to see that your income is being deposited into your account, as well as whether any additional deposits being made or any significant expenses. If you are receiving additional income from somewhere else, be prepared to show your lender where it is coming from and why. This includes any kind of “gift” you might have gotten from a family member to help you buy a home. Keep in mind that your bank statements will show if you’ve had any “NSF” or Non-Sufficient Funds.

4. Divorce Decree: While asking for your divorce decree might seem unnecessary, it is incredibly important to provide. There might be documentation with a previous last name, which the decree can easily explain. Your lender also needs to see if your name is on another mortgage. If your ex-spouse is now responsible for making payments on the mortgage your name is on, you’ll need to provide either a friend of the court printout or 12 months of cancelled checks to show your ex-spouse has been covering payments from their own account. Your decree will also let your lender know if you are obligated to make or are receiving alimony or child support payments. You only need to disclose how much you receive in payments if you are depending on them to help you qualify for a loan and to make mortgage payments. If you are, you will also need to provide proof of that income being received on time. If you do have an obligation to pay alimony/child support, your lender needs to know how much, as it affects your income. Whether you are receiving or obligated, your lender needs to know how much the payments are for and how long they are to continue. Click here for more information on how divorce can impact your finances.

5. Explanations: This might be the most tedious task, but it will help you and your lender move through the homebuying process much faster. Find and provide your lender with explanations for absolutely everything that impacts your income or credit for the last 2 years. If you do have bank statements showing “NSF,” tell your lender why. Don’t be embarrassed to tell your lender if you lost your job at any point within the last two years, they want to know. If your credit score is not great because of a late payment or an emergency, explain what happened. Every detail you can provide your lender will allow them to help you to the best of their ability.

The documentation you must provide can be overwhelming and time consuming to track down, but don’t feel like you are doing so for no reason. The required documentation will help you get the loan you need. If you’re interested in getting pre-qualified, click here for a more detailed list of items you’ll need. Your lender is on your side and wants to make your homebuying experience as smooth and efficient as possible, so meet with them prepared and ready.

If you have any questions about the home buying process or documentation requirements, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!

When you are ready to purchase your new home or refinance your current one, you will be given a series of documents you need to sign at settlement. Understanding what you are signing is important and it will help ensure that you are making the correct decision. Three important documents to review and understand are the Deed, the Note, and the Deed of Trust.

The Deed

The Deed is a legal document which gives rights to something. In real estate, a Deed transfers title of ownership and gives the new owner the rights to use the property. Click here to find out more about Deeds and the different types there are.

The Note

The Note (or Promissory Note) is a contract where a party makes a promise to pay a sum of money to another party under specific terms. In real estate, the Note is the legal document that binds the borrower to repay a mortgage loan. This agreement will contain important loan specification, such as the loan amount, interest rate, due dates, late charges, and the terms of the mortgage.

The Deed of Trust 

The Deed of Trust (or Mortgage or Security Instrument) is a legal document that grants the lender the rights to take the property if the borrower goes into default and does not pay under the terms of the Note. The lender holds title to the property until the borrower has repaid the debt in full.

The Differences

1. The Note is signed by the people who agree to pay the debt (the people that will be making the mortgage payments). The Deed and the Deed of Trust are signed by those who will own the property that is being mortgaged. Typically in a residential settlement, the signers of the Note and the Deed of Trust are the same, but this is not always the case.
2. The Note itself has virtually nothing to do with the property. If the borrower does not pay the agreed amount, the lender can sue “under the Note” and obtain remedies for breaching the contract. The Deed of Trust is the document that grants the lender the rights to take the property if the loan is not repaid.
3. The Deed and the Deed of Trust need to be recorded in the recording office of the property’s county or town, while the Note is returned to the lender.

To learn more mortgage terms, please visit our Mortgage Terms Glossary page.

If you are ready to purchase a home or refinance your own, contact one of our licensed Mortgage Loan Originators today to get started!

The big day has finally come; you’ve decided that you’re ready to purchase your first home! Your initial feeling of excitement likely is preceded by an overwhelming feeling of stress. Not to worry—the folks at NFM Lending have got you covered.

There are two main ways you can go about applying for a loan. You can apply for pre-approval of a loan to help determine what you can afford to borrow (please note that pre-approval is not guaranteed). Also, you can officially apply for a loan after you find the property of your dreams. The first steps to applying for a loan are quite simple.

When you are ready to apply you need to submit information about all of the applicants (for instance you and your spouse). Make sure that you are prepared to give your Mortgage Loan Originator the following information: names, social security numbers, and the monthly income of all the applicants. You also need to submit the subject property address, and the estimated value of the property being bought. The amount of the loan and the down payment are determined during the application process. Your lender will determine if you are able to qualify for that loan amount.

Your Mortgage Loan Orignator will take your application and collect items needed for review.

Here is what you should get together to apply:

• Proof of current income (most recent 30 days of pay-stubs/ recent awards letters for SS, Pensions, Retirement.  If collecting child support or alimony a copy of the separation papers along with evidence that the support has been received for the last 12 months).
• W-2 for the past two years (self employed / commission earners will need copies of their 1040’s for the last two filed tax years).
• All current mortgage information and a copy of the original note if refinancing.
• Evidence of assets: Bank Statements for most recent 2 months preceding the application, copy of the cancelled earnest money deposit check (purchase only).
• Copy of the purchase contract (if completed). 

Your Mortgage Loan Originator will put all of these items together, order a title, and help schedule an appraiser to determine the value of the property. After this, they send your application to underwriting.  An underwriter will determine whether or not you qualify for a loan.

Your dream of owning a home is not too far away. Make sure that you have all of the items listed in this article. The more organized you are, the easier the loan process may be for you. If you are considering getting your loan process started we wish you the best of luck!

If you would like to talk to one of our Licensed Mortgage Loan Originators about applying for a loan, please click here.