What lenders look for in your bank statement
The law demands lenders to lend money responsibly. Thus, a lender must not give you money if they think you cannot service the debt or find you financially irresponsible. But how do lenders ascertain that?
Mortgage lenders take time to carefully review your finances before approving you for a home loan. The aim is to make sure that you have enough money to service your monthly repayments without sinking under mortgage stress. A part of how lenders assess your financial situation is by reviewing your bank statement of at least the past couple of months.
Thus, it is vital to review your bank statement each time you receive it and avoid these common faux pas to improve your chances of home loan approval:
Large, irregular deposits – Large, irregular deposits in your bank statement could raise the suspicion of lenders. Unless you can credibly establish the source of such deposits, lenders may consider the money to be flowing into your account from unacceptable sources. This also applies to a sum of money gifted by your parents to be applied towards your home loan deposit. A gifted deposit must be accompanied by a letter from your parents substantiating the gift. It is also a good idea to let the money sit in your account for a minimum of three months before applying for a home loan.
(Know more about borrowing with a low deposit)
Overdraft fee – Overdraft fee is charged by your bank when you withdraw more money than the balance available in your account. It is no surprise then that a trail of overdraft charges on your bank statement is not going to impress lenders.
Thus, if you have overdraft charges on your account, it is better to wait for a few months before applying for a home loan. Lenders consider overdraft activity to be a sign of financial instability and may assume you are having difficulty managing your finances.
Unexplained expenditure – Lenders scrutinise your income and expenditure, both, to assess your suitability for credit. They will match the expenses listed by you on your application against your bank statement to rule out any irregularities. In principle, as a potential borrower, you must accurately track all your living expenses to show the lenders what you spend lest they estimate a higher level of spending, bringing down your borrowing capacity.
According to an article published on News.com.au, “Borrowers who embrace apps and budgeting technology that tracks their spending are giving themselves a better chance of grabbing a good loan amid a crackdown by regulators.”
Here are a few online tools to help you organise your finances better.
Using technology to facilitate home loans
Using technology, HashChing has made it easier than ever before for brokers to capture clients’ bank statements including full transactional history within seconds through MOGObankconnect. The feature, powered by Equifax, enables prospective borrowers to grant brokers secure access to their bank statements (183 days of data). Brokers also receive clients’ income and expenses report, which they can use to complete their due diligence on the client’s financial condition.
The following lenders are accessible by MOGObankconnect; AMP, ANZ, BOM, BOQ, BankSA, Bankwest, Bendigo, Citi, CBA, CUA, Greater, Heritage, HSBC, ING, Macquarie, ME Bank, NAB, Peoples Credit Union, St George, Suncorp, Teachers Bank and Westpac.
Planning to buy your dream home?
If yes, be extra cautious about your financial transactions as lenders would like to review your past bank statements for at least a couple of months before the date of application. Lenders want to see genuine savings built over a few months and any large or irregular deposits in your account right before you apply for a home loan could raise the suspicion that the money in your account isn’t really yours.
In addition to your bank statement, it is advisable to get your credit report online and review it properly for any incorrect listings (you can order your credit report for free, once annually, on the Equifax website). The success of your home loan application hinges on your credit score to a great extent and borrowers with a good credit score are better positioned to negotiate a lower rate on their home loan. Learn more about credit scores.
If you happen to have bad credit on your file, but your finances are back on track now, you still have a shot at buying your home. At HashChing, we believe everyone deserves a second chance. Discuss your situation with an expert for home loan solutions tailored to your financial circumstances and goals.
HashChing is an online mortgage marketplace that enables Australian homebuyers to compare broker pre-negotiated home loan rates online. Aspiring home borrowers can get in touch with our verified broker partners online to have their queries answered by experts in a transparent manner, free of cost. Browse our broker database.
By Vidhu Bajaj,
HashChing Content Writer