A guide to bank statements for mortgage applications
Funds paid into and paid out of a bank account are the principal means of managing money for many people. Because this is how nearly everyone handles their day-to-day finances, it is likely that you will be required to provide your bank statements when applying for a mortgage.
Our helpful guide below explains why some lenders want your bank statements for the mortgage application process and debunks some common misconceptions.
- What information do mortgage underwriters search bank statements for?
- How many months of bank statements am I required to provide for a mortgage?
- Which creditors do not require bank statements?
- What can a mortgage broker do for you?
1. What information do mortgage underwriters search bank statements for?
A lender will have access to a great quantity of information, including your credit record, but they are unable to examine the actual activities of your bank account.
Your day-to-day transactions on your bank statements can provide an accurate and current image of your financial condition.
Lenders consider various aspects when reviewing bank statements. The most common are:
- Payroll credits: The majority of individuals have their salaries and other sources of income deposited directly into their bank accounts. A lender will check that these appear on your statements and correspond with any other paperwork you give, such as payslips.
- Unpaid expenses: Unpaid items may be a cause for concern to a lender as it signals you are not managing your finances as best as you could. When reviewing your credit file, a lender may not be able to see any missed or late payments if they do not have the most recent report.
- Unauthorized lending: Lenders are normally fine with you having an overdraft if you borrow money that is within your means. What lenders dislike is when an agreed-upon overdraft facility is exceeded. Although your bank may have authorised this, it is another sign of impending financial hardship for a mortgage provider.
- Strange transactions: The same or similar amounts are deposited into our bank accounts each month, and the same number of bills and other expenses are paid out. When observed, lenders may prioritise one-off or atypical transactions. This could involve larger-than-usual credit entries, for instance. This does not imply anything is wrong, but anticipate them to ask additional questions if necessary.Computer technology has made it possible for individuals to finance wagers via bank account transfers. If a lender notices frequent entries in this regard, it may be an indication of financial difficulty.
- Personal information about you: With the advent of internet banking, the practice of receiving a paper bank statement in the mail is essentially extinct. Personal information is managed with the highest care due to the significance of online security. However, when giving bank statements, ensure that they clearly indicate that they belong to you. A lender must see that you are the named account holder. Otherwise, they have no way of confirming the account. Consequently, ensure that the statements include your name and, if feasible, your address.
- Monthly obligations: A lender may request that you provide your monthly obligations on the application. They will likely cross-reference this information with your credit report. Nevertheless, the credit report may not be 100% correct, and people may forget about some recurring payments. These recurring payments may not be related to a credit arrangement, but they may still be required to be declared. These may include car lease payments and maintenance costs.
While there is plenty on your statements that a lender would focus on, there are other entries that they will be less worried about. However, it’s still important to be aware of them in advance:
- Rude entries: While a lender is not interested in the story of a transaction, it looks unprofessional if money is deposited into your account with rude or confusing entries attached.
- Personal pursuits: Everyone is unique, and we appreciate a wide variety of things in life. As long as it is lawful and does not harm your financial situation, a lender is unconcerned about your interests.
- Which financial institution you bank with: No judgement is made based solely on the bank with whom you have an account. Additionally, you should not be penalised if you do not bank with the company from which you are requesting a mortgage.
Remember that a lender is obligated by the Data Protection Act to treat all of your bank account information with the utmost discretion, regardless of its nature. Do not delete entries from your bank account that you do not want others to see.
A lender will not accept a bank statement that has been altered in any manner. Doing so may raise additional concerns that you are attempting to conceal information pertinent to your application.
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2. How many months of bank statements am I required to provide for a mortgage?
The number of bank statements you must give will vary from lender to lender, as well as based on the specifics of your application and circumstances. It is best to assume that your bank statements will always be requested. However, this might not always be the circumstance.
In general, regardless of your loan-to-value ratio, if you have had credit issues in the past, a lender will need at least three to six months of bank statements.
If you have a solid credit history, your loan-to-value ratio may now affect a lender’s choice on whether or not to review your bank statements. The lower your LTV, the smaller the risk. So, if you are borrowing 95% of the property’s worth, expect to give bank statements. However, if you are borrowing 75% or less of the property’s value, bank statements may no longer be necessary.
In rare circumstances, you may be asked to provide bank statements beyond the typical 3 to 6 months. Lenders may ask for statements for up to 12 months as proof that you have paid your rent consistently and on time.
It is important to note that when a lender requests a particular period of bank statements, that period must be covered. For instance, if they request a three-month period, ensure that the transaction period includes a full three months, even if it means revealing more in total. If you are even one day behind in covering the complete three-month period of transactions, a lender would likely still request this, delaying your application.
If your credit report shows you have several active bank accounts, a lender will likely examine each, in order to obtain a complete understanding of your assets, income, outgoings and spending habits.
3. Which creditors do not require bank statements?
All lenders reserve the right to seek bank statements, which may be requested at any time during the evaluation process. Therefore, there is no precise list of organisations that do not require them.
A mortgage application with a specialist lender, such as one that caters to borrowers with poor credit, will typically always require bank statements. If you have a strong credit history, it is likely that larger mainstream lenders will not ask for your bank statements. Similarly, if you have a lower loan-to-value ratio, the probability of being asked to supply bank statements is slim.
4. What can a mortgage broker do for you?
A mortgage broker will use their expertise to help you navigate your way through finding and applying for a mortgage. They will assess your finances and use their knowledge of lenders to find you a deal that best matches your criteria. Mortgage brokers typically make the evaluation process quicker. They are able to complete the relevant documentation correctly and provide well-versed explanations for transactions that a lender may query.
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