Whenever you’re looking for a mortgage, be it a residential, buy-to-let mortgage or commercial mortgage, you’ll need to provide the lender with your bank statements in almost all cases.
Bank statements are essential in determining whether your mortgage application gets approved as lenders will review your conduct.
However, if there are any discrepancies or red flags in your bank statements, your application might be declined.
But it depends on many factors, so there is no need to worry.
In this guide, we will take a quick look at how bank statements affect your mortgage application and what you can do to ensure a smooth approval.
Let’s begin.
Table of Contents
Reasons for Mortgage Declined Due To Bank Statements
Mortgage lenders are well within their rights to reject your mortgage application in case they suspect any red flags.
Usually, any discrepancies can be resolved by discussion, but serious issues might lead to rejection.
The following is a list of some factors, which if present in your bank statements, can negatively impact your application:
- Evidence of payday loans or undisclosed borrowings
- Bounced Direct Debits and defaulted payments
- Large deposits without a verifiable source
- Gambling payments
- Prolonged overdrafts
All of these can be signs of poor financial management to the lender, leading to the decline of your mortgage application.
We also outline not making many impulse purchases whilst applying for your mortgage, as this can be considered a red flag for some lenders if there is large expenditure seen.
What Do Lenders Look For On My Bank Statements?
Lenders will examine your bank statements closely before approving a mortgage to determine whether you can repay the loan.
Lenders must be sure whether the borrower can repay the loan amount. Bank statements help in determining this.
Lenders study your bank statements to understand and confirm your sources of income and their frequency. This lets them assess whether you can afford to pay back the loan you’re taking out.
Lenders will also compare your bank statements with your mortgage application income declarations to determine if there are any discrepancies.
Along with your income verification, lenders also need to confirm your expenses, and your bank statements help in this as well.
Direct debits, ongoing financial commitments and spending habits can all be determined from your bank statements, all of which help calculate whether you’ll be able to afford the mortgage.
Finally, your bank statement can help determine the source of your deposit and whether your funds are from a verified source. If they see undisclosed amounts, they might consider this as a red flag.
Which Bank Statements Do You Need To Provide?
Most people these days have accounts with multiple banks, so does that mean you’ll need to provide statements for all of these accounts?
It is good practice to provide all bank accounts so the lender is in a fully informed position, these include accounts into which you receive income, your expenditure, hold your deposit amount or any other cash reserves you plan to use to fund your mortgage will need to be disclosed.
What Happens If My Mortgage Application Is Declined Due To Bank Statements?
In case your mortgage application is declined due to bank statements, you need to talk with your lender to determine the source of the problem and see if it can be rectified. In these cases, it’s best to have an experienced mortgage advisor with you who can help with the technicalities.
Frequently Asked Questions (FAQs)
1. How many months of bank statements do I need to provide my lender with?
Usually, lenders ask for the last three months of bank statements to assess your mortgage application.
2. Is it possible to get a mortgage with a low credit score?
Yes, getting a mortgage with a low credit score is possible, as some lenders specialise in serving borrowers with bad credit. However, you might not get favourable terms and need to pay a higher interest rate. In this case, we recommend taking the advice of an experienced mortgage broker who can help you navigate these tricky waters.
3. Can childcare costs affect my mortgage application?
Any childcare costs that come out of your bank accounts associated with the mortgage application will be considered regular outgoings and factored into your affordability calculations. So, childcare costs can affect your mortgage application by impacting your affordability assessment.
Our goal is simple – to provide most up-to-date and accurate mortgage information to make your mortgage journey as stress-free as possible. Have a question? Fill up the quick form and one of our mortgage advisor will connect with you.
