Month: February 2019

When you think of tools that lenders use to determine your qualifications as a buyer, the first thing that may come to mind is a credit report.

This is an invaluable tool for lenders, since it shows patterns, and lenders are very interested in borrower patterns. They want to see trends of successful management of payments month to month. They also want to know how much debt you currently have. The credit report will provide all of this information.

Still, it doesn’t provide all the data the lender needs. Another tool they use to evaluate buyers is the bank statement. This offers a day-to-day window into how you manage your finances. The lender is specifically looking for overdrafts and proper accounting for all deposits that appear on the statement.

Overdrafts: Overdrafts, especially when there are a lot of them on a regular basis, will draw the attention of lenders. The lender will have several questions about these occurrences: Are you short of funds each month, or do you need to balance your checkbook better? How are you recovering from the overdrafts? What will keep this from happening in the future, once we lend you our money?

Deposits: All deposits on a bank statement must be accounted for. Electronic payroll deposits normally need no explanation, as the dates and amounts can be cross-checked with pay stubs. Other infrequent or large deposits will need to be explained and documented.

Lenders are looking for specific things regarding these deposits. They want to confirm steady sources of income that can be used for future mortgage payments. They also want to check for any gifts you may have received to help you secure a mortgage. If this occurs, the funds must have come from an eligible source. The lender may require a letter of explanation to confirm the legitimacy of any such gifts that show up on your bank statement.

To learn more about this process and how your bank statement affects your buying power, contact your mortgage professional.

The answer to this question depends partly on whether you are paying off an existing mortgage at the time of closing. Let’s look at an example to illustrate this process.

In our sample scenario, you are purchasing your first home, and the closing date is set for May 10. At closing, you’ll pay interest charges from that date through the end of the month (May 31). That means you’ll pay 22 days of interest at closing. Your tax assessment will also be based on this date. Thus, the nearer to the end of the month you close, the lower your out-of-pocket charges are for this closing expense.

After closing on May 10, your first mortgage payment will be due July 1. Contained in that July payment will be interest charges for the month of June. The August payment will then cover the interest charges for the month of July, and so on. Interest charges for any given month will be paid at the beginning of the following month.

If you are refinancing or paying off an existing mortgage, the date of closing is less important. If you close on the 27th of the month, you will have a lower interest expense on the new mortgage than if you close earlier in the month, but you are still going to be paying interest on the prior loan for the first 26 days of the month.

In short, you will always be paying interest charges to one lender or another. There will never be a gap when no interest is due to anyone.

Do you have additional questions about this process? Contact your mortgage professional for more information.