When applying for a mortgage, expect that lenders will look at your bank statements. They want to verify and ensure that they can afford the loan payments, down payment, and closing costs.
If your bank statements are free from errors and clear of any questionable detail, then you have a greater chance to get approved. Lenders get insights into your life from the bank statements. They look for anything that can give them clues if the prospective borrower struggles to keep up with future loan payments. However, some activities can lead to disapproval of the application.
If you are planning to get a mortgage application, make sure that you know the bank statement mistakes you should avoid. Make sure to use a mortgage calculator to find out your rates and how to bargain.
Below is a list of bank statement activities that serve as a red flag to lenders and can lead to application disapproval.
Having Gambling Habits
Your bank statements, any payments you made, and bookies have no exemption. So, the lender can reject your application upon discovering that you are into gambling.
You may have a perfect credit history, however as your prospect lender discovered that you have a gambling habit from your bank statements, your mortgage application will be ruined. The lender would assume that you cannot pay the loan because you will only gamble the money.
Many lenders quickly decline a mortgage application due to gambling transactions found on the bank statement.
Dipping into Overdrafts
Being overdrawn is seen by the lenders as a sign that prospective borrowers are having a hard time managing their finances efficiently. So, they doubt that the borrowers will not be responsible for handling their future loan payments.
Some banks offer a service that will let you go overdrawn. On the other hand, as long as you pay for it on time, that would be fine. Besides, you need to make sure that you will not frequently go over the overdraft limit because that activity is enough to get your mortgage application declined.
Getting Payday Loans
Mainstream lenders see payday loans as a red flag in a mortgage application approval. Having a payday loan means that you cannot keep to the monthly net income. So, if you have a large mortgage commitment, then it means that you could have a problem with your finances in the future.
Meanwhile, in case you have enough funds in your account at the end of the month, this is another problem that you will have in the application.
Having Joke References
Do you have bank statement jokes? If yes, you might have a hard time getting your mortgage approved. So, you need to take all the details you put in your bank statements seriously.
Keep in mind that joke references to family members or friends will only cause you a severe problems in the future. Any light-hearted banter must be out of your bank statement. If not, do not expect that approval of your mortgage application would be easy or even possible.
Getting Unexplainable Deposits
Any regular payment from friends or family is considered as a financial commitment. This activity could affect the overall affordability. Besides, you need to provide a reasonable explanation for getting an unusual payment.
The lenders see irregular or outsized banks deposits that your down payment and closing costs came from unacceptable sources.
Any large, undocumented deposit is considered as an illegal gift. As a home buyer who applies for a mortgage, you are not allowed to ask for help from people who stand to gain from the home buying transaction, such as real estate agents and the home seller.
When your bank statement covering the most recent two months is used, you should expect that the lender will evaluate it if there are large deposits. If the lender found that there are recent large deposits with no acceptable explanation, they will consider a red flag that they need a follow up with you.
Suppose you fail to prove the large deposits through documentation that the source of that deposit is reliable and acceptable under the program’s guidelines. In that case, the lender will disregard the fund. They might also use anything left for you to qualify for the loan.
In case that the verified funds are not enough to meet the qualifications, you will require another chunk of money and make sure that it is from an acceptable source.
Be aware that a one-off cash payment affects the decision of the lender of getting your application approved. That is because of the issue of money laundering. Not only that, people who gift a part of deposits to you should show proof of wealth.
Having Suggestive Card Payments
Do you have a one-off payment on your bank statement? Mind that it can affect the approval of your application.
There are instances that the lender asks the prospective borrower if she is pregnant. That is because it can affect affordability.
Having Regular Payments, But Irregular Activities
Ensure that you check if your monthly payment does not correspond to the credit account being disclosed on the mortgage application.
Most of the time, a credit report pulls in student loans, auto loans, credit cards, and other debt accounts. On the other hand, some creditors do not report to the three major credit bureaus.
In case you got a business loan or a private loan, for instance, from an individual rather than a bank, your debt details will not show up on the credit report.
However, a monthly $300 automatic payment on the bank statement will alert the lenders of non-disclosed credit accounts.
Final Thoughts
As you apply for a mortgage, the lenders will ask you to provide bank statements. They will use them to ensure that you can afford the monthly mortgage payment, down payment, and closing costs. They also use them to verify the amount of your savings and their sources. You need to make sure that your bank statements are free from any of the above activities. That way, your application has a better chance of getting approved.
