Pre-Approval Question...

LSzwaya · September 2011

I mostly lurk and have learned a ton from you ladies. I am sorry if this has been asked before but DH and I are hoping to rent out our condo and buy a single family home in the next 6 months. We're planning on doing our pre-approval after the holidays, early January and I know the lender will ask for several months of bank statements. Is there a running balance guideline that you should have? We like to keep the bulk of our money out of our checking account and in our savings to really limit unnecessary spending. I have tried to find the answer to this with no success. Are they looking for a minimum running balance (i.e. at least 2 months of mortgage payments etc) in your checking account or do they just want to see that you have a checking account and no over drafts? Thanks!

lil_jen051708 · September 2011

I think they just want to figure out an average balance. You can send them your savings statements too since you keep most of your money. They can see if your mortgage payments are timely when they pull your credit report so they aren't going to go through to see if you paid your mortgage 2 times, your utility bill 2 times, etc.

LSzwaya · September 2011

lil_jen051708:
I think they just want to figure out an average balance. You can send them your savings statements too since you keep most of your money. They can see if your mortgage payments are timely when they pull your credit report so they aren't going to go through to see if you paid your mortgage 2 times, your utility bill 2 times, etc.

Ok! Thanks!

Justinlove · September 2011

Keep in mind that rental income typically does not count as income on your DTI ratio until you can show 12 months of consistent rental income. In our experience with owning multiple homes, you will most likely need to show that you have reserves for 6 months that would cover the expenses of BOTH homes in addition to the 20% downpayment. Your retirement accounts can be used for the reserve but your downpayment needs to be in a savings or similar account.

LSzwaya · September 2011

Justinlove:
Keep in mind that rental income typically does not count as income on your DTI ratio until you can show 12 months of consistent rental income. In our experience with owning multiple homes, you will most likely need to show that you have reserves for 6 months that would cover the expenses of BOTH homes in addition to the 20% downpayment. Your retirement accounts can be used for the reserve but your downpayment needs to be in a savings or similar account.

Thanks for the info!

Jen&Jeff06 · September 2011

You should not need to furnish your bank statements for a pre-approval. But you will need them for underwriting purposes. Depending on the type of financing you do, you will need one or two months bank statements. Underwriting looks at the ending balance of your most recent statement, as well as large, unsourced deposits.

My best advice is to not make any large deposits or draws that you can not show documentation for, so that way the funds in your account are seasoned.

If you have overdrafts, the underwriter will ask for a letter of explanation as to why this happened. One or two is not really a problem, but don't let it be a habitual thing. Even if you have overdraft protection, it still reflects negatively.

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