What is Bank Statement?
Bank Statement is a periodic statement detailing financial transactions, account balances, interest rate changes, and other financial events occurring in a given period of time for a bank account held at a depository institution.
Bank statements are usually provided for account types such as checking accounts, savings accounts, and money market accounts. The statement may be for consumer or commercial purpose accounts.
A separate statement is sent for each account holder. The statement may include the transaction information for all the accounts held by the account holder. For example, if you have a checking and savings account, then you may only receive one statement showing details for both accounts. Joint account holders would also receive one statement. Therefore, you may only receive one statement for an account held by you and your spouse.
Typically, banks issue statements on a monthly basis. Statements may not be sent for dormant accounts.
Consumer Deposit Accounts
As per Regulation E, for consumer purpose accounts if the account holder has the ability to make electronic funds transfer then the bank is required to provide the statement monthly if there has been a transfer. If no transfer has occurred then the statement must be sent at least quarterly.
Purpose and Use of Bank Statement in Mortgages
Bank Statement is used to document the stability of the borrower's financial position. This is done by reviewing the income deposits, account balances, spending patterns and fees. In particular, the following analyses can be performed by the lender:
- Cash Flow Analysis: The lender would review transactions to verify if the deposits and withdrawals are consistent to the profile of the borrower and represent a predictable pattern.
- Regular payments: Payments for repaying debt should be included in the Debt-to-Income (DTI) calculations.
- Irregular payments: Irregular payments should be investigated. They may represent undisclosed borrowings or obligations. Irregular deposits that are not expected to continue in the future should not be included in the income calculations.
- Verification of Income: The bank statement can show whether the income stated by the applicant is being regularly deposited in the account. Note that the loan application may contain gross income while the payroll deposit would reflect deposit after tax, medical insurance, and other withholdings.
- Verification of Assets: The overall balance is verified using bank statement. This is important for saving accounts, certificate of deposit accounts, and money market accounts. While reviewing the balances identify if there are any holds or restrictions on the account. For example, the account may already be held as collateral for another loan.
For The Lender
Below is a checklist of items to look at when accepting and reviewing bank statements.
- Minimum Information: The statement should include applicant's name, address, account number, balance, and statement period. Compare this information to the loan application.
- Account Holders: If the account holder names include names other than the applicant’s name, then ensure that the applicant has full and unrestricted access to funds in the account. Additional account holders may be present in the case of a joint account, a trust account, a partnership account. Special attention is needed in following cases:
- Account is held jointly with a spouse who is not a co-applicant.
- When the applicant states in the loan application as self employed and the bank statement is for the partnership account.
- Complete Statement: The bank statement must have all pages, and not just the summary pages.
- Validity: The bank statement should be a recent statement. Most underwriting guidelines do not accept statements that are older than 60 days.
- Online Statements: Online statements are acceptable if it has all the pertinent information. However, screen printouts, account activity, and transaction list from the online account should not be accepted as they are not regarded as official bank statements.
- Balances: Compare the account balances with the loan application and use the balances from bank statements for underwriting purposes.
Quality Control and Fraud Prevention
The bank statements can be verified with the issuing institution by sending them a copy and asking them to return a written response verifying the statement. The balance must be requested as of the date of the bank statements provided by the applicant or the loan agent. This step may uncover any forged bank statement.