Bank Statements for Home Loan Application

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Russell Munfaredi

Russell Munfaredi

Russell Munfaredi is the Managing Director and owner of Mortgage Pros. Russell’s wealth of knowledge, unstoppable drive and impeccable service has been the key driver of Mortgage Pros’ success.

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During a home loan application, your bank or non-bank lender will require you to submit documents that verify or describe your income and current financial situation. That includes documents such as:
  • Bank statements
  • Payslips and other proof of income
  • Details on existing loans or monthly credit payments, among others
Lenders would review and assess these documents meticulously to accurately assess your eligibility and capacity to pay off the loan without defaulting. But why do they particularly require bank statements? Simply put, your latest bank statement illustrates factors necessary to describe your financial situation, such as:
  • Your monthly income
  • Your outstanding debts and expenses
  • Your recent purchases (wants)
  • How regularly you deposit
  • Your ability to save
Lenders want to fully understand how you handle your finances to compute if you can carry another financial obligation (i.e. mortgage repayments). Hence, it makes sense to look at your history and past financial behaviour in the form of bank statements. Your bank or non-bank lender must legally (and objectively) determine if you can repay your monthly mortgage on time.

What do banks look for in bank statements?

Most banks’ general requirement is to submit the latest three months’ bank statements. Over that period, a lender would pay close attention to the following details:

1. Income consistency/stability

Bank statements can help inform your lender that you’re earning regular and stable income. Lenders often decline applicants who are unemployed or do not meet the minimum income requirement. The most reliable way to confirm this is by looking at your bank statement and evaluating how frequently you get paid and how much you get over the 3 months.

2. Spending patterns from your bank account

Lenders categorise payments and debits made in your account to vividly create a picture of your cash flow— how much you earn and how much you spend each month. This step is crucial in fully evaluating whether you have enough funds to make mortgage repayments after getting your home loan approved. These expenses will differ from one lender to another, but they often revolve around transactions such as:
  • Rent payments
  • Groceries
  • Utility payments
  • Insurance
  • Car loan, credit card, and other liabilities
  • Entertainment (shopping, dinner payments, etc.)
  • Gambling
  • Tax
  • Gifts
  • Negative balances
Your bank would account for all these expenses to assess whether you can still pay for essentials (insurance, education, etc) after taking out the mortgage. Moreover, you will also be checked for other liabilities unaccounted for in your statement, such as direct debits from your bank account. Suppose your balance history frequently drops to zero, gets overdrawn right before your next salary, or has steep entertainment expenses. In that case, your lender may perceive you as a high-risk borrower since they may determine you can’t repay your loan comfortably. That said, before taking out or applying for a loan, our senior mortgage brokers highly recommend cutting down on frivolous and trivial spending, such as unnecessary shopping, game subscriptions, takeaway food, and others, within 3 or more months leading up to your application. Doing so irons out minor creases in your bank statement and reduces payments to give more room for your mortgage.

3. Your fiscal responsibility

Banks easily favour borrowers with the least chance of defaulting on the loan. One way to evaluate that objectively is by measuring your fiscal responsibility through your bank statements. How much you saved up in the past 3 months (or more) can indicate how responsible you are in saving and budgeting. In fact, many lenders want you to demonstrate considerable genuine savings from the past 3 months or older before proceeding with your home loan application. Genuine savings are the money that you have saved up regularly over time. It’s different from a work bonus, tax refund, or lump sum deposit from a family member before you apply for the loan. Think of it this way: Say you have zero savings in your bank account, then a family member transfers $100,000 to your name last week. If you apply for a home loan today and submit your bank statement, your lender will interpret the lump sum deposit as a cheeky way to disguise that you have liquid assets to repay the loan. As a result, your loan application could be declined. Banks and non-bank lenders accept the following as genuine savings:
  • Savings accumulated in your bank account for over 3 months
  • Term deposits untouched for over 3 months
  • Gift money you saved in your account for 3 months or more
  • Managed funds and shares kept in your account for over 3 months.
But be cautious since late charges and other dishonoured payments (utility bills, credit card, etc) can sound the alarms and may be red flags implying that you’re struggling to meet your expenses and aren’t responsible enough to get approved. Talk to our senior mortgage brokers at 1300 030 388 or enquire now to discover whether your bank statement highlights your strength as a borrower or how you can improve it before applying for a loan.

4. Whether you can make the loan deposit

Speaking of genuine savings, mortgage lenders will look at your bank statements to determine if you have enough funds to make the loan deposit, which is often 20% (or less for professionals and qualified applicants) of the property value. Whether you have more or roughly the exact deposit amount in your bank account, your lender will most likely look for it before approving the home loan.
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What if my bank statement doesn’t meet expectations?

Many have applied for a home loan only to get rejected by their lenders. For those wondering, your bank statement, along with other application documents, play a role in indicating whether you’re an ideal applicant for any given home loan.

Not everyone has the same financial circumstances, just as no two home loans are alike. But before you apply for your next home loan, it’s good practice to start building up a smart spending habit to show lenders that you’re a responsible and reliable borrower.

Consider the following practices:

  • Pay off outstanding debts and student loans first before applying for a loan
  • Build up genuine savings and have them sit in your bank account for at least 3 months
  • Reduce unnecessary spending at least 3 months leading up to your home loan application
  • Pay all bills on time and avoid any late fees, no matter how small they seem.

Remember that every little detail in your bank statement can influence your borrowing power. Each small action can contribute to the bigger picture and affect how you’re perceived as a borrower once your home loan gets approved.

Talk to our senior mortgage brokers at 1300 030 388 or enquire now to get started.

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