As you gather all the requested documentation your loan officer asked for, it probably all seems fairly basic. The lender will want to make sure your new monthly payments are affordable, so you’ll be asked to provide third party documentation about your income. This is typically accomplished with copies of your pay check stubs or the lender cans send what is referred to as a Verification of Employment letter, or VOE, to your employer.
If you’re self-employed, copies of your last two years of income tax returns will be needed. Of course, there will be a credit report pulled. To make sure you have enough money available to close on your new Alpharetta home, copies of your bank statements will be part of your application package. But your lender will also look for other things your bank statements will tell.
Having enough available funds to close means having enough not just for a down payment and closing costs, but also what is known as cash reserves. Cash reserves are counted as the number of months’ worth of mortgage payments are in the bank, left over, after closing. If the total monthly payment including taxes and insurance is $2,000 and the cash reserve requirement is three months, there also needs to be an additional $6,000 on top of down payment and closing costs.
Once that threshold is met the lender will match up the deposits in your bank account with your scheduled pay periods. If you get paid on the 1st and 15th of every month, then there should be deposits from your employer showing those amounts.
Lenders will also want to know more about any deposits made that don’t line up with your scheduled pay days. If for example you get paid $3,000 on the 1st and the 15th but another deposit shows up on the 20th for $5,000, you’ll need to document where the $5,000 came from, otherwise it can’t be counted as having sufficient cash to close.
The lender wants to make sure a random deposit isn’t in fact money borrowed that must be paid back at some point in the future which would then affect your monthly credit obligations and therefore your debt ratios. This often happens when someone is getting a financial gift from a family member who is helping out with closing costs and a down payment. If this is the case, your lender will tell you what sort of documentation will be necessary so that gift can be used at the settlement table.