What are Bank Statements?
A bank statement is a record issued by your bank summarizing your financial activity over a specified period. It details the inflow and outflow of funds, as well as the opening and closing balances for the statement period. When applying for a loan, it's common for lenders to request bank statements for the last three to six months to support your application.
What Do Lenders Look for in Bank Statements?
Lenders use your bank statements to understand your past financial behaviour and predict your ability to repay the loan in a timely manner. Here are a few aspects they'll consider:
- Your Income
Lenders may review your bank statements to determine the frequency and amount of your income. They'll also look to see whether you've recently switched jobs or have a stable employment history.
- Your Expenses
High expenses can impact your ability to repay a mortgage, even if you have a high income. Your bank statements can reveal your typical expenses, giving the lender an idea of your loan serviceability. Lenders will also closely examine your bank statements for regular debit transactions to ensure you don't have any hidden liabilities. For example, they may scrutinize your use of buy now pay later services like Afterpay. Regular use of these services could indicate poor financial management and could negatively impact your home loan application.
- Your Savings
If you are borowing to buy a home, lenders generally require you to have at least 5% of the property value saved from your income. Your bank statements can help the lender determine the source of your deposit and assess your savings habits. Regular savings can increase your chances of loan approval as it indicates sound financial planning.
- Overdraft Fees
Overdraft fees occur when you withdraw more money than you have in your account. Regular overdrafts can be a sign of struggling cash flow, and lenders may reject your application if they find that you frequently need more money in your account before payday or your account is regularly overdrawn.
- Large, Irregular Deposits
Large deposits that are not in line with your typical financial activity could raise suspicions with lenders. You'll need to credibly establish the source of such deposits to ensure they are accepted by the lender. This also applies to gifted deposits from parents, which must be accompanied by a letter substantiating the gift. It's recommended to let the money sit in your account for at least three months before applying for a home loan.
In conclusion, your bank statements play a crucial role in your loan application, and it's wise to review them before submitting your application. If you're concerned about potential red flags, it may be helpful to speak with a finance broker to avoid any issues during the application process.
Published: Thursday 9th February, 2023
Last updated: Thursday 9th February, 2023
