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What do mortgage lenders look for in bank statements?

What do mortgage lenders look for in bank statements?

When you take out a mortgage to buy a home, the lender needs to make sure your chances of defaulting are low. A lender will ask for a lot of information to get an idea of your financial situation and whether you’re a safe bet, including your employment and income records and existing loans. 

One of the things you will need to hand over with your application is your bank statements - a summary record of the money that flows in and out of your bank account.

Why do mortgage lenders need bank statements? Because lenders want to know your past financial behaviour, so they can be confident that you will be able to pay your mortgage instalments on time.

Here's what a lender may pay closer attention to when looking at your bank statements:

  1. Regular and consistent income: Bank statements help establish that your income is coming in consistently. The lender will want to see the frequency of income, the net amount and how long you’ve been receiving employment payments fors. 
  2. The pattern of expenses from your account: Your lender will check your typical expenses with a view to understanding whether you will have sufficient funds to pay the instalment after taking the home loan. They will also check for any other liabilities that you may not have mentioned to them, such as any direct debits from your account. If you are applying for a loan jointly with your partner or spouse, they may want to look at both accounts together. This helps to see the income and expenses of the family as a unit. If your account hits zero or gets overdrawn almost every month just before your next salary is due, lenders may suspect that you will not be able to pay the mortgage instalment comfortably. They will also want to know that you will be able to pay for existing essentials such as insurance, or kids education fees, after you take out the mortgage. 
  3. How fiscally responsible you are: If there are dishonoured payments or late charges on the credit card or  utility bills, it may raise a red flag in the lender’s mind.
  4. You have the funds for the deposit: Banks prefer borrowers capable of putting down a deposit of 20 per cent or more of the value of the house. Whether you are putting down exactly that amount, or more or less, your lender may like to see it in your bank account before approving the loan. This is one more thing that they may confirm by going through your bank statements.  

Before you apply for a loan, it’s good practice to set up habits that show lenders you’re a responsible choice.

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