How Your Banking Habits Can Influence Your Home Loan Application

As a mortgage adviser, I often see people surprised by how much their bank account matters when applying for a home loan. So in this week’s update, I’m going to shed some light on why your bank statements are such a critical piece of the puzzle when you’re looking to secure a home loan. Read on or give me a call to find out more.

The Window into Your Financial Life

Your bank account is more than just a place to store your money – it’s a comprehensive record of your financial behaviour. When you apply for a mortgage, lenders will typically request 3-6 months of your bank statements. Here’s why this matters:1. Income Verification

Your regular income deposits are one of the first things a lender will look for. They want to see:

• Consistent salary or wage payments
• Regular income from investments or rental properties
• Any government benefits you receive

This helps them confirm your income and assess your ability to make regular mortgage repayments.

2. Spending Habits

Your bank statements reveal a lot about how you manage your money. Lenders will be looking at:

• Your regular expenses (rent, utilities, subscriptions)
• Discretionary spending (eating out, entertainment)
• Any large or unusual transactions

They’re not there to judge your lifestyle, but to ensure you’re living within your means and have the capacity to take on a mortgage.

3. Savings Discipline

A history of regular savings is a big tick in the eyes of lenders. It demonstrates:

• Financial discipline
• Ability to budget
• Potential for building up a deposit

Even small, consistent savings can make a positive impression.

Red Flags That Could Hurt Your Application

While reviewing bank statements, there are several things that might raise concerns for lenders:

1. Overdraft Usage

Frequent use of your overdraft facility might suggest you’re struggling to manage your finances. Even worse, going into an “unarranged overdraft” on a regular basis will definitely raise a red flag.

2. Missed Payments

Any missed payments or dishonoured transactions could indicate financial stress.

3. Gambling Transactions

Regular gambling-related transactions, even if small, can be a red flag for lenders.

4. Payday Loans

Evidence of short-term, high-interest borrowing might suggest financial difficulties.

How to Prepare Your Bank Account for a Mortgage Application

If you’re planning to apply for a mortgage in the near future, here are some steps you can take to ensure your bank account paints the best possible picture:

1. Budget Carefully: Create a realistic budget and stick to it. This will help demonstrate your ability to manage money effectively.
2. Save Regularly: Set up automatic transfers to a savings account, even if it’s just a small amount each week.
3. Reduce Non-Essential Spending: Cut back on discretionary expenses for a few months before applying.
4. Avoid New Debt: Hold off on taking out new loans or credit cards in the months leading up to your application.
5. Keep Your Account in Good Standing: Avoid overdrafts and ensure all direct debits and automatic payments are honoured.

The Bigger Picture: Your Overall Financial Health

Remember, your bank account is just one piece of the puzzle. Lenders will also consider:

• Your credit score
• Your employment history
• Your assets and liabilities
• The property you’re looking to purchase

However, your bank statements provide a real-time snapshot of your financial situation that other documents can’t match.

Final Thoughts

As a mortgage adviser, I can’t stress enough how important it is to maintain a healthy bank account, not just when you’re applying for a mortgage, but as a general financial practice.?

It’s not about having a perfect record – we all have financial ups and downs – but about demonstrating responsible financial management overall.

If you’re considering applying for a mortgage and have concerns about your bank statements, it’s worth speaking to a mortgage adviser. We can provide personalised advice on how to present your financial situation in the best light and increase your chances of mortgage approval.

Remember, buying a home is a significant financial commitment, and lenders need to be confident in your ability to manage it. By understanding the importance of your bank account in this process, you’re already one step closer to achieving your homeownership dreams. Reach out if you need a hand!

Cheers,

Dallas

??027 218 8795 [email protected] ??loanmarket.co.nz/agile