Your bank statements could have more more influence than you realise on your loan application.
A potential lender can use your bank statements to give a snapshot of all your spending and income. Better than an applicants declaration of spending which can overlook so many pertinent factors relating to their expenditure, an analysis of bank statements can reveal everything about where they spend, what they spend on, and any categories of income that can be a potential red flag to a lender they’re asking for a loan from.
Your bank statements can be used like an X-Ray of a patient in a hospital. A 3 month analysis of your bank statements will reveal if in fact you can afford a loan. Companies like Proviso that own www.bank statements.com.au and their competitor www.cashdeck.com.au take lenders into your home and out at every restaurant, cafe and bar that you frequent. They can analyse any spending in red flag areas like gambling or show excessive spending in alcohol that a lender may use to reject a loan.
In the current regulatory environment lenders are concentrating more on trying to determine an actual applicants expenditure rather than their estimated expenditure from a maligned Expenditure Table. The resultant bank statements analysis can show a lender all the categories of your expenditure and can determine amounts that need to be taken into consideration before working out what amounts of income are available to service a potential loan. As more lender’s are using automated systems to assess loan applications these bank statements programs can result in an automatic rejection of your loan application if you spend too high a percentage of your income on discretionary items leaving too little available to service a potential loan. Some lenders will automatically reject a loan where more than 5% of income is expended in gambling. Gamblers that start small can gamble their house away.
Bank statements also show how you manage your cash flow. A positive balance at the end of a pay period indicates to a lender that you manage money well, a negative balance indicates that you don’t and are a potential credit risk. Bank balances can determine rates you qualify for, loan amounts that are available to you.
Income credits to bank statements also indicate potential affordability of loan repayments. Self employed applicants that show frequent deposits to their bank account show a healthy cash flow, infrequent deposits could mean a struggle to have the funds readily available to make loan repayments. Credits as well as debits are also used in credit scoring to determine the success or otherwise of a loan application. The use of Bank Statements greatly assist in this.
Lenders and Lender’s Mortgage Insurers (apply when a loan to valuation ratio exceeds 80%) also use bank statements when assessing applications where genuine savings need to be shown such as in First Home Owner Applications. Lump sum payments can reveal that an applicant’s deposit is not from genuine savings therefore a loan rejection will be the result.
To game the system of a lender assessing three months of bank statements broker’s advise applicants to look at their bank statements the same way as a lender does. If there are any overdrawn fees, gambling payments, expenditure in excess of standardised tables that lender’s use it is better to park the application until such time as those transactions fall off the statements 90 day window. It is possible that an application can have a completely different chance of success simply by an applicant being lender mindful every time they transact on their bank account in a 90 day period. Being mindful that a lender is scrutinising bank statements can be the difference between a loan approval and a rejection.
A bank statement is just one way a lender assesses an application, but it can reveal a lot to lenders about the risk of providing a loan. Lender’s are all about risk assessment and bank statements are a valuable tool in their armoury. Understanding the 90 day window can help an applicant provide to lender a positive result to the bank statement risk assessment.