VA home loans, perhaps the most popular benefit available for those who qualify, are primarily famous for their zero down payment requirement. VA loans have been available since the original creation of the Serviceman’s Readjustment Act of 1944, commonly known as the G.I. Bill. Yet while VA loans don’t require a down payment there will most always be other fees and costs associated with buying a house and a VA lender will make sure you have enough funds available in order to close on your new home or your VA refinance mortgage.
VA loans restrict the type of charges that a veteran may pay and include such costs as charges for an appraisal, credit report, origination fees, recording fees, survey and title insurance reports. Such costs are sometimes referred to as “non-recurring” closing costs because they’re a one-time fee associated with the loan and won’t happen again.
Other charges are called “recurring” fees and will happen again as long as the borrower keeps the VA mortgage and doesn’t sell the property or refinance into another loan. Such charges are items such as mortgage interest and property taxes.
Both recurring and non-recurring closing costs need to be accounted for when a VA home loan application is evaluated and lenders make that determination by reviewing a borrower’s bank and investment account statements.
Sufficient Funds to Close
When lenders review bank statements and other financial accounts, they’re looking for only the amount needed to close the VA home loan transaction and nothing more. The lender adds up the necessary charges then asks you how you’re going to pay for them; these fees are sometimes referred to as “sufficient funds to close.”
For example, your one-time, non-recurring charges add up to $5,000 and your recurring fees account for $2,000. Your lender will then verify the amounts needed by looking at your bank statements for at least $7,000 in available funds.
Reviewing Your Statements
Lenders require your available funds to close be from a liquid, cash account. Such an account means you have immediate access to the funds and you can withdraw them without penalty. The most common source of such funds is from your checking or savings account.
Your lender will ask that you provide the most recent two month’s bank and investment statements for review. When you submit your statements to the lender, make sure you send all pages, even if one or two of the pages are blank. If you submit your statements and the pages are marked, “1 of 12”, “2 of 12” and so on, if “10 of 12” is missing, you can count on your lender asking for the missing page. The missing page might even say something to the effect of “This Page Intentionally Left Blank” and you think it’s a bit silly that a lender will need a blank page but in reality, the lender doesn’t know the page is blank until you provide it to them.
Your lender will look at the most recent balance and use that amount as evidence of sufficient funds to close. If you’re a bit short, say you need $7,000 and you only show $6,500 in the account, you can make an additional deposit in the account documenting the source of the funds and a deposit slip showing the deposit and the new, updated balance.
The lender also reviews your bank statements to look for consistency with your reported income. For example, if your pay check stubs say you bring home $3,000 on the 1st and 15th each month, the lender looks for deposits of those amounts on or around the 1st and 15th.
Beware of additional deposits that might show up on your statements. For example, if you get paid on the 1st and the 15th but there are additional deposits showing up on different dates with different amounts, be prepared to explain the sources.
For instance, a VA lender can ask for an explanation for a deposit of $300 that appeared on the 10th of the month. The $300 was actually proceeds from a garage sale. While you may not think that’s any business of a lender and in fact silly to document such trivial amounts, lenders are required to document all deposits. The primary reason is to determine the non-regular deposits are proceeds from a personal loan you too that can affect your monthly payments.
Providing evidence of having enough money to close on a VA loan is just as important as having it. As long as the deposits can be verified as coming from a legitimate, regular source, your bank statements will fly through the underwriting process.