If you’ve recently been asked to provide bank statements as part of your mortgage application then you’ve probably asked yourself, what do mortgage lenders look for in bank statements? When reviewing bank statements, mortgage lenders are assessing if you can afford the monthly mortgage costs and repayments for the mortgage that you have applied for. To do this they will look at your current income, expenditure, and whether your monthly finances are stable. These checks for part of their assessment to decide if the loan is affordable for you.
If you’re in the market for a new mortgage, you will need to go through your finances and bank accounts with a fine tooth comb well in advance of your application. You should understand what you’re looking for, what the lender will look for and how to give yourself the best chance possible of being approved for a mortgage.
In this article, we’ll explore the part your bank statements play and how they can affect your mortgage application.
What Mortgage Lenders Look For
Mortgage lenders and mortgage brokers will often ask for your most recent bank statements when you are ready to apply for a mortgage to access your regular cash flow.
They will usually ask for at least 3 months worth of all accounts that you will be used to supply your deposit and to pay your mortgage. The mortgage underwriters may use these statements to determine your eligibility on a variety of factors to ensure that you have the financial ability to repay the loan.
Here are some of the things that mortgage lenders will look for in your bank statements:
- Your current income: Mortgage lenders will want to see that you have a steady income coming in. They will also want to see that your income is sufficient to cover the repayments on the loan.
- Where your deposit has come from? It’s important that all of your deposits can be traced. Whether this is in your account from savings you have to build up, a gifted deposit, inheritance, or several of these, there must be a paper trail to show this in your bank statements.
- Your employment history: Mortgage lenders will often look at your employment history to see if you have a stable job. They will also want to see that you have been employed for a certain length of time and that the employer offers regular and stable wages into your bank account free of financial uncertainty.
- Your credit history: Mortgage lenders will also pull your credit report when you apply for a loan. They will use this information to determine your creditworthiness.
- Your debts: Mortgage lenders will want to see that you have a manageable level of debt including personal loans. They will also want to see that you are making regular payments on your debts and don’t have any missed payments.
- Your assets: Mortgage lenders will also want to see what assets you have. This includes your savings accounts, investments, and property. They will use this information to determine your ability to repay the loan.
- Your expenses: Mortgage lenders will also want to see a list of your monthly expenses and regular bill payments. This includes your housing costs, food costs, transportation costs, and other debts. They will use this information to determine your ability to repay the loan.
If you can provide all of this information to your lender or dedicated mortgage advisor, then you should have no problem getting mortgage approval. If however, you are missing any of this information, then you may have to provide additional evidence of your ability to repay the mortgage finance requested.
How Many Statements Are Needed?
Lenders typically require borrowers to provide a bank statement for each bank account that will be used in purchasing their property covering at least two to three months. This helps the lender to verify the borrower’s income and assess their ability to repay the loan.
Bank statements also provide information on the borrower’s spending habits and whether they have any outstanding debts. The lender will use this information to determine whether the borrower is a good candidate for the loan. If the borrower has a history of financial problems, the lender may require them to submit more than three months of bank statements.
Ultimately, the number of bank statements required by a lender will depend on the borrower’s circumstances and the lender’s affordability and assessment criteria for mortgage approvals.
How To Make Bank Statement More Presentable To Mortgage Provider?
Most mortgage providers will require bank statements as part of the application process. While this may seem like a straightforward requirement, there are a few things you can do to make your bank statement more presentable before submitting them.
- Be sure to review your statement for any errors or discrepancies. This will show that you are attentive to detail and take your finances seriously.
- If you have any bounced checks or late payments, try to explain them in a letter attached to your statement. This will demonstrate that you are willing to take responsibility for your mistakes and are working to improve your financial situation.
- Try to keep your balance above a certain amount, and not go overdrawn each month. This will show that you are financially responsible and can repay your mortgage.
- Make sure that the bank statement is physically clear and legible so that it’s easy to review. Use dark ink and print on white paper or save electronic versions as PDFs before sending.
- Organise the statement chronologically so the mortgage provider can easily follow your transactions. Alternatively, some people find it helpful to categorise expenses by type, such as “utilities” or “entertainment.” Whichever method you choose, be consistent from month to month so that you can easily compare your spending over time and it’s easy for the lender to review.
- Attach a cover letter explaining anything that may be unclear on the statement, such as large deposits or withdrawals.
By taking the time to prepare your bank statement carefully, you will increase your chances of showing the lender that you are a reliable borrower. This in turn could help you to meet their affordability and lending criteria which could ultimately mean that you get a lower interest rate and save significant sums of money on your mortgage over its repayment term.
When Applying For A Mortgage, What Do Lenders Look At In Bank Statements?
Lenders typically request bank statements when an applicant is seeking a mortgage. The reason for this is to assess the applicant’s financial history and current situation.
Bank statements can provide a lender with information about the applicant’s income, debts, and spending habits. They can also reveal any large deposits or withdrawals that may have occurred. All of this information helps the lender to determine whether or not the applicant is a good candidate for a mortgage.
In addition to looking at bank statements, lenders will also consider an applicant’s credit score, employment history, and other factors. Ultimately, the goal is to find a qualified borrower who is likely to repay the loan in full and on time. If you have a history of financial problems, the lender may require you to submit more than three months of bank statements to make their assessment.
Bank Statement Red Flags For Lenders
Whilst the first half of this article covers what to do to make your bank statements more presentable, there are a few common red flags that you should try and avoid too.
Red flags for lenders include frequent overdrafts, large cash withdrawals, and unexplained deposits or transfers. If a lender sees one or more of these red flags on an applicant’s bank statement, they may choose to deny the loan or require additional information from the applicant.
- Large overdrafts used or regularly exceeding your overdraft limit
- Returned direct debit payments
- Large cash withdrawals and unexplained deposits
- Not disclosing loans or regular expenses that appear on your statements that you haven’t declared in your mortgage application.
- Gambling payments and payday loans
By understanding these common red flags, applicants can be better prepared when applying for a loan and supply supplementary information to explain them. This can include providing evidence of how they have improved their financial situation since the red flag occurred or why the expense is necessary.
The Importance Of Planning Ahead
Not many people get a mortgage on a whim, as buying a house takes serious financial planning. If you know that you have a poor credit history or your bank statements would include some of the red flags listed above, then it really does pay to plan to get your finances in the best possible shape before they are scrutinised as part of the mortgage application process.
These simple things can make a big difference in how reliable you are seen to be in a lender’s eyes:
- Make sure all income, outgoings and general spending are accounted for
- Stay on budget and avoid spending habits that need loans
- Do a financial health check – cancel direct debits for services you no longer use, reduce your overdraft, and don’t take new finance products in the 6 months before your application
- Try to reduce transactions that show high levels of expensive socialising and unbudgeted spending such as eating out and event tickets if these are stretching your finances beyond their means
- Payday loans show lenders that you’re unable to get by each month without additional funds, so your budget is too far stretched already, without a mortgage. Evidence of recent payday loans could negatively impact your application, so try to ensure these don’t feature in the 6 months before your application.
- Whilst there is nothing wrong with gambling from time to time, lots of transactions or particularly large gambling amounts could indicate signs of compulsive gambling which could alarm your lender and present you as a high-risk applicant.
- Any payments to undisclosed accounts or unusual payments could set alarm bells ringing. Whilst most will be perfectly innocent, the mortgage underwriter has a duty to ensure that your finances are above board before approving your mortgage application. Always make sure that transactions are properly labelled and explained in your budget or accompanying letter if it’s not clear on the account statements.
- A final piece of advice is that you should avoid opening any new accounts, making large purchases or making any significant changes to your existing finances in the months leading up to your mortgage application. Lenders will want to see a steady financial history, so any sudden changes could be interpreted as financial instability and make them less likely to approve your loan.
By following this advice and ensuring that your bank statements are free of red flags, you will be in a much better position to secure the mortgage you need and increase your chance of qualifying for different mortgage types from your mortgage lender.
How Long Do The Affordability Checks Take?
Your mortgage lender will use your bank statements as part of their loan affordability checks to check that you can afford to repay the monthly mortgage costs, but how long should you expect this process to take?
Mortgage affordability checks are an important part of the mortgage process, and they usually take between two and four weeks to complete. The length of time may vary depending on the lender and the complexity of your financial situation. In general, you can expect to provide some basic information about your income, debts, and assets, as well as details about the property you’re hoping to buy.
Mortgage affordability checks ensure that the borrower can afford the loan repayments, and they also help to identify any potential risks associated with the loan. For example, if the borrower has a high level of debt, the lender may be concerned about their ability to make the repayments. The mortgage affordability checks will help to assess the risk and determine whether or not the loan is affordable for the borrower.
When applying for a mortgage, there are a few key things you’ll want to keep in mind, especially what do mortgage lenders look for in bank statements.
First and foremost, you’ll need to have a good understanding of your finances because mortgage lenders typically look for a certain level of consistency and stability in your bank statements when you’re applying for a mortgage.
Mortgage lenders want to make sure that you’re able to afford the monthly mortgage payments, and that you have a consistent record of income and spending so they can see that you have good credit history and a strong ability to repay the loan.
If you can plan ahead before applying for a mortgage to show that you’re a responsible borrower through your bank statements, and by working with a mortgage broker for specialist mortgage advice, you’ll be in a much better position to get approved for a mortgage.