Spending habits do affect your chances of getting a mortgage. Your past spending, saving and financing habits have the ability to boost your chances of securing a mortgage just as they have the capacity to demolish them as well.
A routine check up of your spending habits helps the bank determine the health of your finances, which in turn minimizes their risk in approving your mortgage. Conservative to moderate spending habits bode well for your loan approval, and excessive or untimely spending can derail your mortgage altogether.
Each lender has an individual standard for how much you should have in savings, but most want to see at least a few months' worth of payments in your account. They also want to see that you can pay your down payment and closing costs without help.
Mortgage lenders need bank statements to make sure you can afford the down payment and closing costs, as well as your monthly mortgage payment. Lenders use all types of documents to verify the amount you have saved and the source of that money. This includes pay stubs, gift letters, tax returns, and bank statements.
Payment history: Lenders also will review your payment history on credit cards, loans, lines of credit and anything else that shows up on your credit report. They want to make sure you have a track record of on-time payments that could indicate you'll be a responsible mortgage borrower.
High Interest Rate:
The most obvious Red Flag that you are taking a personal loan from the wrong lender is the High Interest Rate. The rate of interest is the major deciding factor when choosing the lender because personal loans have the highest interest rates compared to other types of loans.
Lenders generally focus on your income and how you make it, the property you are buying and its value, your savings and spending habits, your credit history and what you own or owe.
During their initial checks, a mortgage lender will take a look at your income, outgoings and credit report, among other things, but will only carry out a soft credit check at this point.
Most lenders will request your bank statements (checking and savings) for the last two months when you apply for a home mortgage. The main reason is to verify you have the funds needed for a down payment and closing costs.
Mortgage affordability isn't just about your income, but how you spend your money. During the mortgage application process lenders will ask about your spending habits and also want to see around six months' bank statements to back up what you say.
Lenders look at various aspects of your spending habits before making a decision. First, they'll take the time to evaluate your recurring expenses. In addition to looking at the way you spend your money each month, lenders will check for any outstanding debts and add up the total monthly payments.
When assessing whether or not to grant you a mortgage lenders will be looking at how much you want to borrow; the size of your deposit; your credit history; your employment status; your income; your debt levels; any financial dependents, and your spending habits.
Paying cash for big purchases during the mortgage process is a logical option. However, you have to be cautious too, as it can also put your approval at risk. You can pay cash as long as you have enough cash to cover for your down payment, closing costs, and cash reserve when the closing time comes.
Lenders want to know details such as your credit score, social security number, marital status, history of your residence, employment and income, account balances, debt payments and balances, confirmation of any foreclosures or bankruptcies in the last seven years and sourcing of a down payment.
Generally, it's a good idea to fully pay off your credit card debt before applying for a real estate loan. First, you're likely to be paying a lot of money in interest (money that you'll be able to funnel toward other things, like a mortgage payment, once your debt is repaid).
Taking on additional debts
Doing so will lower your credit score and raise your overall credit utilisation ratio – the amount of credit you have used compared to the amount of credit available to you. To keep this ratio as low as possible, you should limit credit card use before applying for a mortgage.
Mortgage lenders need you to provide them with bank statements so that they can verify your income and affordability, check for any risk factors and see your deposit funds.
Some mortgage lenders have a minimum income requirement of £20,000 per year for residential property purchases, while others accept applicants who are earning between £15,000 and £10,000 a year. Moreover, there are even a few specialist mortgage lenders in the UK who have no minimum income requirements whatsoever.
TL;DR: You should try to spend no more than 35% of your gross (pre-tax) income on your mortgage. A more conservative recommendation is no more than 25% of your gross income. If you are currently in the market for a house you will first need to figure out exactly how much you can afford.
How far back do mortgage lenders look at bank statements? Generally, mortgage lenders require the last 60 days of bank statements. To learn more about the documentation required to apply for a home loan, contact a loan officer today.
But will their mortgage application be accepted? According to research by one credit card company, one in five of us have had a credit application rejected and of those 10% have been turned down for a mortgage.
So, what qualifies as a major purchase? Buying a vehicle with or without financing in the days leading up to closing is a good example. But anything that changes your financial picture in a big way should wait until after closing.