I could really use some help on this one. We're in escrow and our lender just asked about an account of ours that there was a $1000 deposit to from our main checking account. The account in question is an ING checking account that we barely use. For those not familiar with ING checking accounts, they provide you a line of credit which in our case is $1000. Each transaction that overdraws your accounts shows as an overdraft but they don't charge you a set fee like many banks do, rather they charge you interest since it uses a line of credit that's attached to the account. In early february we had a couple of transaction that overdrew our balance at which point I transferred the $1000 (just a few days after the overdraft transactions) from our main checking account, which is how they now know of its existence. Of course they want statements and I'm now freaking out that those overdrafts will now get our loan turned down. I'm hoping someone has insight into how something like this may be handled. The loan in question is an FHA loan. We have high credit scores and plenty of funds in our main accounts that they already have statements from.
Thanks in advance!
I have not had to produce statements for an account that I was not using as an asset on a loan application. A borrower does not have to produce statements for every account they have.
The fact that you withdrew $1,000 from your checking account should have no bearing on your loan. The thing banks are looking for are unusually large deposits into your account that you are using as an asset. Those need to be documented and explained, as those are funds that are going into the deal.
The problem is that the lender is asking me to provide them with statements for the account in question and once I do that they're going to see that it was overdrawn "recently". I guess I could ask them if I have to but that alone sounds pretty suspicious. Ugh.
It seems a lot of underwriters are asking for things they have not asked for in a long time, if ever. If you ahve not used the funds from the account for earnest money, assets, down payment or whatever, it seems odd to me that they would ask for statements.
It definitely has become the Golden Rule...Those that have the gold, make the rules.
Maybe ask your loan officer if they would take a Verification of Deposit?
You have to be very careful. Just because a lender does not HAVE to request documentation does not mean they can not ask for it. IT is also perfectly normal for them to ask for statements showing all assets and a cehcking account would be an asset. Once they are aware of something and request documentation, you have littel choice but to provide it. If you do not, then they will question the circumstances and be concerned you are hiding debts or that there are other issues going on like NSF's or pay day loans, etc.
What was the reasoning behind the overdrafts? If ther is solid reasoning that can be explained/documented it is probably not abig issue, especially if that 1K you pulled was nto needed from closing. IF it was due to poor money management or planning, then that may be an issue, and they may request more detailed information.
Also, that line of credit is a debt that they shoudl have been made aware of and if you are breaking into that to pay normal bills while in the process of purhcasing a home that may raise flags to them, espeically if they were unaware of it's existence as it seems. Obivously using any LOC or getting hit with NSF's during applicatin is an issue, it all comes down to the reasoning, and whether or not they see a pattern. SO if there have been NSF's the last couple months it gets harder for them to approve a loan.
Talk to your LO and see what they say
I don't have a good reason for the overdrafts. Because we have that credit line attached to the account and it's not an account that we use much I don't really pay a lot of attention to it and the $0.15 that it cost us in overdraft fees that month really made no difference in my life. The account got overdrawn by 3 transactions for a total of just above $200 when I made the transfer for $1000 to cover that and any upcoming debits. The funds are not needed for closing and we'll have lots of funds left in our main accounts even after closing.
I'm not sure how that line of credit can be considered a debt when it rarealy gets used and at the time of our mortgage application wasn't being used, neither is it now. Either way we have plenty of room left in our dti ratio. We were preapproved for $425k and are paying $350k. I guess I'm just worried because they may consider it irresponsible behavior but with 780-800 credit scores and zero credit card debt despite several cards with high credit limits, how irresponsible can we really be?!
IT is also perfectly normal for them to ask for statements showing all assets
It is completely up to the borrower to disclose what assets (bank accounts) they would like to be considered on their loan application. It is not uncommon at all to exclude some bank accounts a borrower may have from the loan application. The banks have no right to review all assets a borrower may have, but they may examine to their content the assets a borrower is using for credit qualification.
So our LO finally called me back and he wasn't concerned about it at all. He said that with our credit scores and financial profile it wouldn't affect the loan at all. Phew. He said that the underwriter may not even ask for the statements since the only thing on our main account that references that account is a transfer to it as opposed to from, which is when they would want to see the statements to see where the funds in it come from. He also said that he and his team just like to collect all documents ahead of time so that they have them on file if needed. I guess that's good news in a sense but quite exhausting all at the same time. And the reason that this whole process has me so frazzled in the first place is because between self employment and cash income we've had to produce a lot of letters and documents already. I can't wait for this whole process to be over already.
Thank you guys for your help and input!
Just to be clear, you never have to provide anything they ask for, but not providing information that they ask is a big red flag... I was under the assumption though that the processor or UW had requested the docs which is a bit different than the LO (who as you were told, often cast wide nets for info so if the UW does request something it is already there). Also, with a strong file otherwise, NSF's are not usually an issue, it is just if a file is borerline (and most people who end up with NSF's right before closing are borderline), it can be the straw that kicks it into denial.
As far as the line of credit, typically you have to disclose any open credit lines you have and they have to be factored into DTI. IN use or not, it is a line of credit. There is a difference between an overdraft account and a line of credit that you can draw upon at any time for any reason. Not sure which this one is. I got the impression that it was basicly a personal line of credit that was linked to your checking so if the checking went into OD it could pull the money from it. Anyway, it appears not to matter. Good luck with it.
I agree, if they ask me for something they'll get what they ask for since withholding will usually look far worse than the actual issue is (as it would be in this case). I also thought that the UW had asked for it since I know she's working on our file, but once our LO got back to me it turned out that wasn't the case. The whole line of credit I can't even explain. I believe that it automatically comes with ING checking accounts (at least they used to). We never requested it or had to provide any info for it. But of course because it exists and because the interest rate is so low I haven't concerned myself too much with any transactions that draw from it (which you would know is unlike me if you take a look at our credit reports). Anyway, that account needs to go. That's one too many checking accounts. I'm just glad it didn't turn out to be a costly oversight.