Here is our short guide on knowing what financial weaknesses stand out to lenders so that you have the best chance possible at getting a mortgage loan approved.
Mortgage lenders are specifically trained to spot any financial mismanagement, so they may take a lot of time reviewing your finances before approving a loan. The main assessment criteria is whether you have enough money for a down payment, closing costs and whether you can afford the monthly repayments.
The Warning Signs:
Overdraft charges, lenders will typically want to check the last two months of bank statements when they evaluate your finances. If you have a lot of overdraft charges in your bank statement, that is a pretty good indicator that you may not be a good borrower. No matter the circumstances surrounding the situation, having a history of overdraft or insufficient funds noted on your statement is a warning sign that you might struggle at managing finances.
Large deposits can also be a red flag for potential lenders. This is because it may appear that funds are coming in from an illegal or unacceptable source. In most cases the lender will disregard those funds and apply the amount left to determine whether you would qualify for a loan.
The bank of mum and dad can also raise a few red flags to a mortgage lender. This is because if you have consistent tracked regular payments to an individual rather than to a bank, some lenders may consider this as a non-disclosed credit account. For instance, if you were to take a loan from your parents and make car payments to them rather than a bank as an example.
How to reduce the scrutiny on your bank statements
You should always take extra care of your transactions in the months leading up to applying for a mortgage. Lenders will want to see that the money in your account has been there for a while, not just recently deposited. One or two big large sum deposits into the account before applying, could suggest to the lenders that the money isn’t yours or isn’t a “seasoned asset”.