It’s no secret that lenders are strict about who they will lend money to, and your bank statements play a big role in determining if you’re an ideal borrower or someone the lenders should avoid.
This all comes down to Australian lending regulations, which ensure that all lending is done with the borrowers best interest in mind. So if a lender sees anything to indicate you may not be able to service the debt, or finds you to be financially irresponsible, they cannot loan money to you.
Lenders take the time to carefully consider your finances before deciding to take you on as a borrower. This is primarily done by analysing your income (such as payslips from your employer) and your bank statements, to ensure not only that you’ve got a high enough income to make your repayments, but also that your lifestyle and expenditures demonstrate appropriate financial behaviour for taking on what is often a large, long-term debt.
The easiest way to avoid a surprise rejection when applying for a loan is to set aside some time each month to go through your statements with the understanding of what would raise red flags for the lender:
1. Large, irregular deposits
No, we’re not talking about the money your friends sent you for that fancy restaurant bill last week. Large deposits raise the eyebrow of lenders when they can’t be credibly explained. Unexplained income can raise suspicion that your additional income stream is from a less-than-reputable source. This even applies to gifts intended to help you with your home loan deposit – gifted money should be accompanied by a letter from the sender explaining the nature and purpose of the gift.
2. Overdraft fees
If you’re regularly spending above your means and overdrawing your account, it won’t be any surprise that lenders will be inclined to think you’re not able to manage your money. Try to always have a minimum level of funds in your account, and avoid going into the red at all if possible.
If you can’t avoid an overdraft fee it’s advised you wait a few months before applying for a mortgage to give yourself the best chance of success.
3. Unexplained expenditures
If you’ve been asked to list your expenditures on your application you best make sure they match what is shown in your statements. It’s expected that you will have a fairly accurate idea of the money you’re spending month-to-month.
Regular unexplained outgoing payments can also trip you up – if you’re making deposits regularly to an external account without a reasonable explanation the lender may see this as a red flag for undisclosed debt.
And a few extra things to keep in mind:
- Leave a few months between any big purchases or large deposits and the date of your application. If you can show a recent history of responsible money management your chances of approval will be much higher.
- Lenders like to see genuine savings being built over a period of months, so plan accordingly in the lead up to submitting your application.
- Get a copy of your credit report and review it for any incorrect information. There are plenty of places online that allow you to download your credit report for free, including the Equifax website.
