Applying for a mortgage can be a complicated process. To move your application along as swiftly as possible, it helps to have all the documentation the lender wants to see ready to go in advance. Lenders need to know that you'll be able to keep up with your repayments and will want to see evidence of your ability to earn money every month consistently. Naturally, they will look at your bank statements to see how much money you have coming in from month to month. But how far back do mortgage lenders look at bank statements? This is a common question mortgage applicants have, and it helps to know beforehand so you can ensure you have them ready when the lender or financial adviser asks to see them.
There's a lot of confusion amongst first-time mortgage applicants regarding how their bank statements affect their application. Different lenders will have their own criteria for assessing your financial situation and deciding whether to accept your application. Your individual situation will also determine the terms of your mortgage if you are granted one.
Each lender has their own eligibility criteria. If you want to know whether a lender you are considering approaching for a mortgage will need to see bank statements to support your application, the simplest way of finding out is to simply ask them.
Your bank statements will give lenders the best indication of your financial situation, and therefore your ability to keep up with mortgage repayments should they agree to lend to you. Like all financial institutions, mortgage lenders want to minimise their risk exposure and avoid lending to people who will struggle to repay their loan. A lender can see exactly how much you have in savings and confirm your regular income and outgoings from your bank statements. They will also assess the impact of adding mortgage repayments to your existing financial commitments.
Reviewing your bank statements isn't just about assessing your financial situation. Financial institutions have a legal obligation to ensure their customers aren't involved in money laundering or other forms of fraudulent activity. From your bank statements, they can determine the source or destination of every transaction. So, while not every lender will need to see bank statements, checking them is a common practice throughout the industry because it is an easy and cost-effective way to ensure all the sources of your funds are legitimate.
The underwriters who check your bank statements will use the lender's eligibility criteria to guide their audit, so not every lender will be looking for the same thing. However, the majority of providers will be checking for the following:
Lenders want to know you have funds available and can afford to keep up with repayments before accepting your application. Mortgages often require a deposit, and there can be other initial fees to pay. Some lenders will have additional cash-reserve requirements and will want to see that you can make a certain number of initial monthly repayments.
Your monthly income and outgoings will determine your affordability. By dividing your monthly outgoings by your income and multiplying the result by 100, lenders can calculate your debt to income ratio. The lower this figure is, the more disposable income you have.
Checking the sources of your deposits enables lenders to confirm that you aren't involved in any potential criminal or fraudulent activity. For most people, the majority of their deposits will be from their employer or transfers from their other accounts. You may have to provide evidence of the origin of any other deposits.
The number of bank statements lenders need to see will depend on their individual policies. For applicants who have regular employment and a salaried job, mortgage lenders will usually want to see the most recent statements going back around three months.
However, if you are a self-employed contractor or you own your own business, lenders will often want to see statements going back further to show that you can reliably earn a stable income. Self-employed applicants should prepare to show at least a year's worth of business accounts, often more.
Note that these are average figures; every lender has different requirements. To get a definitive answer for how far back a mortgage lender will look at bank statements, you will need to ask them.
Applying for a mortgage is a significant stage of many people's lives, and it's only natural to worry about the outcome. Knowing what might constitute a red flag for lenders and cause them to decline your application can help put an applicant's mind at ease. As well as the criteria we outlined above, other factors that will impact their decision include:
- Funds from overseas savings: Tracing the origin of overseas savings can be difficult. Some lenders are more flexible than others regarding overseas savings.
- Gambling funds: There's nothing wrong with using gambling winnings to cover the costs of a mortgage deposit. But it might go against the lender's criteria, which could count against the application.
- Payday loans: Any evidence of payday loans on your statements will make it more difficult to obtain a mortgage, even if they have been paid off completely. The same applies to other forms of unsecured borrowing.
Your bank statements will often form an important part of your mortgage application. If you have any concerns about how your bank statements might affect your mortgage application, get in touch with us today for advice.
Contact UsAs a mortgage is secured against your home/property, it may be repossessed if you do not keep up with the mortgage repayments.
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