When you apply for any loan the lender will look at your credit score to determine if you have good or bad credit, but when you are looking at getting a home loan the lenders will also look at your bank account conduct to see how good you are at managing money.
Bank account conduct has become an important consideration so it’s important to know what the lenders are looking at.
Lenders Review Your Bank Statements
When you are looking to get a home loan you need to know that the lender will be reviewing your bank statements.
If you have just gone to your main bank then you will not even know that they are reviewing your banking transactions, but they will. The lenders will bring up your transactions and go through them to ensure that you have demonstrated good account conduct.
If you have gone to a different bank or a mortgage broker then they will ask you to supply 3-months of bank statements so they can be reviewed. Many of the top mortgage brokers will use an automated system to retrieve your bank statements to make this a very simple process. The broker will then review your account conduct before the banks even see anything, and this way any concerns can be raised and answered which gives you a better chance of having your loan approved.
What Do The Lenders Look For?
There are a number of things that the lender will be looking at.
- Account Balances – how much you have in your account is not the most important thing a lender will look at so don’t worry if you think your balances are too low.
- Overdrafts & Excesses – the lenders do not like seeing your account is going over any limits that you have. If you have no overdraft limit but go into overdraft then it is considered that your account management is poor. A mortgage broker should get a comment from you to submit with the application and often this will put the lenders at ease.
- Payment Reversals – sometimes the bank will not allow payments to go through if they would put the account into overdraft. The lenders do not like to see any reversals as this means that (a) your bank account management is poor and (b) the bank are not allowing this type of conduct.
- Patterns of Withdrawals – the lenders do look at how much you are spending and what you are spending money on. Of course “normal” expenses are fine but they are looking for expenses that don’t match your application and also for things like excessive money being spent on habits like gambling and alcohol etc.
- Automatic Payments & Direct Debits – they will be checking to see that all payments match what you have disclosed in the loan application and what shows on your credit checks. It is important to disclose everything and also mention any payments that have or will be ceasing, otherwise the lender will assume that those payments will continue.
- Tithing & Donations – you may think of tithing and donations as being discretionary expenditure; however the lenders don’t think that way. If they can see tithes or donations then they will include these as expenses and they will impact on what you can borrow.
Those are some of the key things that the lenders will want to review from your bank statements.
Improving Your Bank Account Conduct
If you are planning to get finance approved for your new home soon then it would be a good idea to have a mortgage adviser review your account conduct now.
This gives you a good idea on what things to focus on improving, and most advisers will offer a free review for you.
In many ways your bank account conduct is more important than how you manage your budgeting, although it’s good to ensure that you do budget too as this will help avoid large unexpected expenses which can be hard to manage.
Having a savings account with regular contributions also helps as it shows that you can live within your means and also save extra. It is also a good habit and having some savings that you can access will be very helpful too.
It’s all about getting a smarter start to home ownership.