Can a Bank Deposit Hurt Your Chances of Being Approved for Real Estate Financing?

It is known that every penny shown in your back account can help you qualify for a mortgage, but that is not always true.  A large deposit of money into a bank account can actually harm your chances of being approved for a home purchase or refinance.

Real estate investors should know that their bank account statements will need to be reviewed in order to be approved for a real estate loan.  However, few investors expect the hassle that comes with this step when they are asked to prove deposit sources.

Bank Deposits and Real Estate Financing

Real estate lenders should not ask for documentation to prove obvious deposits such as employment income or an IRS tax refund.  Your bank statement will show the deposit source for these types of deposits.  On the other hand, if there is a large deposit that has no source stated the lender will most likely question the deposit and will need proof of deposit source.   Large deposits that are not from your employer or a tax refund, like a check or cash from a friend after lending him money, will appear on the bank statement as an “ATM/Cash Deposit.” All “ATM/Cash Deposits” will require proof of deposit source.  There is no way to determine what is a large deposit, so the best bet is to not make any “ATM/Cash Deposits” during the processing of getting a real estate loan.

Real estate lenders need proof of deposit source to clarify that no other credit accounts were opened, no cash advances or loans.  Any new credit accounts opened between the time of application and funding will need to be reconsidered as they will affect your debt to loan ratio and real estate financing approval.  Be honest about any credit account with your lender, as it will jeopardize your acceptance and the real estate lender will find out about the credit accountant.

What tips can you give other real estate investors when it comes to applying for a real estate loan?