Can My Bank Statement Hurt My VA Loan?

When you apply for a mortgage, you'll be asked for a significant amount of documentation. Lenders need to verify your employment, income and assets before determining VA loan preapproval.

One document you'll provide is a full bank statement for each of your accounts. Bank statements are a window into your spending habits and ability to make sound financial choices.

Your bank statement is sent to an underwriter to review once you're under contract. It's the underwriter's job to conduct a thorough investigation to ensure you meet both lender and VA guidelines and are able to make your mortgage payments. Underwriters then comb through each line, looking for questionable transactions.

But what exactly are VA lenders looking for, and could it hurt your chances of VA loan approval?

What VA Lenders Look for on Bank Statements

Lenders review your bank statements during the loan underwriting process to determine if you can afford a VA home loan. Typically, they assess your monthly income, monthly payments, past expenses, cash reserves and reasonable withdrawals.

Here are some specific aspects your lender will look for:

• Monthly income: Verification regarding the sum and regularity of your salary from your workplace is required.
• Monthly payments: Verification of any monthly obligations mentioned in your loan application and any unmentioned regular payments.
• Past expenses: Lenders want to ensure that your habitual expenditures are within acceptable parameters.
• Cash reserves: Your bank statements provide transaction details and display your overall account balance. Lenders review this balance to ensure you possess the necessary funds for the initial payment and associated closing costs.
• Reasonable withdrawals: Cash withdrawals should appear consistent and be of moderate amounts.

Bank Statement Red Flags for VA Loan Underwriters

Sometimes, there are ways to get around submitting a bank statement, but that's not always possible. That's why it's really important to know the four most common transactions that can cause trouble.

1. Bank Overdrafts

It's really important to avoid overdrafts on your bank statements.

Overdrafts and negative balances are a problem since they indicate you can't manage your finances appropriately, which is a huge deal when you're asking a lender for hundreds of thousands of dollars. Most bank statements have a section showing how many times an account has been overdrawn or in the negative in the past 12 months.

Do your best to avoid even having one overdraft or negative balance. If you do have one, you'll probably need to wait until you are a month or more out from the occurrence before you plan to close on a VA mortgage. If you have several, you may want to reassess whether you're ready for a home purchase or need to get your finances in order first. Regardless of whether you have one or ten, be prepared to provide a letter to your lender explaining why each overdraft or negative balance occurred.

2. Expensive Recurring Payments

Do you have payments that appear on your statement every month? These are considered recurring and will be scrutinized to determine whether the payment needs to be added to your debt-to-income (DTI) ratio calculations.

For example, you will have utility payments for your current home that you pay every month. It's unlikely that this recurring payment will cause an issue because you won't have that expense when you move to your new home. Maintenance and utility cost calculations for your new home will be a part of your residual income calculation.

3. Untraceable Cash Deposits

Cash isn't traceable, so it can cause problems for your mortgage application if you don't document it properly. Let's talk about two different scenarios.

If you plan to use cash savings in your mortgage transaction, this cash will need to be documented. Your best bet in this situation is to deposit the cash into a savings account several months before you start the mortgage application process.

If this isn't possible, then you'll have to provide a letter of explanation going into significant detail. An underwriter may even want to see a budget showing how you were able to save up this cash. The underwriter has discretion here and may not allow you to use this cash if he doesn't feel your documentation is sufficient.

If you receive any type of income in cash, you will face some challenges if you want to use it for qualification purposes. For many who work in the service industry or other jobs that receive cash income regularly, one option is to provide two years of tax returns as proof of income. If you don't claim the cash on your taxes, you're likely out of luck.

4. Undisclosed debts

If you have debts or monthly expenses you didn't disclose during your initial loan application, an underwriter will find them on your bank statement. This is why it's always best to disclose everything at the offset.

Two common undisclosed debts are for childcare or a non-purchasing spouse's debts. If you pay any childcare expenses, you must notify your loan officer when you apply for the loan. Childcare expenses are included in your debt-to-income ratio, and with childcare costs being so high, it could significantly impact the amount of loan you can obtain.

Another common situation occurs when a borrower applies for a loan and doesn't include their spouse on the application. If the spouse has debt, such as a student loan or car payment, those separate debts must be included on the loan application. If you don't disclose all debts at the start, adding them later could result in a sizable reduction in loan amount or outright denial.

If you would like to talk with a VA mortgage expert about your specific situation, call 1-800-212-1958.