Why do mortgage lenders want to see bank statements and pay stubs?

Question: "I've been reading about all of the paperwork I have to submit with my mortgage application. And I was wondering, why do mortgage lenders want to see bank statements and pay stubs for the last few months? Is this pretty standard across the board?"

This is all part of the income and asset verification process. Lenders want to see your bank statements so they can verify the financial assets you have on hand, primarily your checking and savings accounts. They want to see your pay stubs so they can verify your current employment and income status. These are just two of the many documents you'll have to provide.

In most cases, they will ask for your two most recent paycheck stubs (or the electronic equivalent) and your bank statements for the last three months. This is a general rule, so be sure to ask your lender exactly what they need from you. It might vary, based on their underwriting guidelines and business practices.

You can file most of this under 'P' for protecting the lender's interests. That's essentially what they are doing when they ask to see your bank statements and pay stubs for the last few months. For example, the bank statements help them verify the assets you have available for your down payment and closing costs. But they will also look for a certain "cushion" of extra funds, in the event that you lose your job. Basically, they want you to be able to pay your mortgage payments long enough for them to foreclose on the property (if such a unfortunate event were to occur). Like I said, you file it under 'P' for protecting the lender.

The same goes for your pay stubs. Mortgage lenders want to see your pay stubs so they can compare your income to your debts. This is referred to as your debt-to-income ratio, or DTI, and it's a key factor in the mortgage-approval process. If you are carrying too much debt relative to your gross monthly income, then you present more of a risk to the lender. They might not be willing to give you a loan at all, based on this particular ratio.

This article answers the question: Why do mortgage lenders want to see bank statements and pay stubs. If you have other questions about the lending industry, the home buying process, or anything relating to consumer credit, be sure to do a search at the top of this website. We have thousands of articles available, so you're bound to find the information you need.

I hope this has answered your question, and I wish you well in your future financial endeavors. Good luck, and thanks for dropping by.