The home loan documentation procedure has always been a nightmare for many applicants. The voluminous documentation takes a toll, not only on your time, but also on your peace of mind. There are multiple caveats built into such documents.
Most home loan borrowers feel that half the information and documents asked for are unnecessary.
You are expected to carefully review many documents. A good credit score does not mean that you can escape the paperwork.
The process is tedious if you do not have a clear understanding of the purpose behind each document involved in the process.
One such document the home loan applicant has to submit for home loan application assessment is the Bank Statement.
Understanding the request of bank statement for a home loan
- Most lenders ask for the latest six months of bank statement.
- How will a lender get to know that all the assets mentioned in the home loan application belong to you, i.e. you have paid for them? This is verified from your bank account/ statement (i.e. your savings/ salary account). They want to know how much money you have in the bank, and how long it has been there.
- Lenders use your bank statement to calculate the average monthly balance maintained by you. Higher the average monthly balance, more controlled are your expenses.
- Every month’s salary must also reflect in your bank statement.
- If there are additional deposits/credits in your bank statement apart from your regular income, be ready to furnish the supporting documents to prove where these funds came from.
- The equated monthly instalments (EMIs) paid on all your existing loans and advances will also be checked in your bank statement.
- The margin money you pay on your home loan (i.e. the amount of margin money receipts — MMRs) must reflect in your bank statement. Lenders permits only a very nominal percentage of the MMR to be paid in cash. So, you must make sure that the MMR payment is paid by cheque.
- If you tell your lender that you took some amount of money from your friend or family, to take the home loan, the lender will not only assess your bank statement in detail. But the lender will ask for this family/friend’s bank statement too, to verify the transfer of funds on both ends.
- Lenders want to ensure that you have ample funds in your bank account(s) to cover your down payment, closing costs and other related home loan expenses.
- Lender will take all adequate measure to source all recent deposits/credits in your bank account. Mysterious funds (i.e. deposits for which the source cannot be found) can be a deal-breaker during the underwriting process.
- Bank statements are also used to calculate Debt-to-Income ratio (i.e. a measure to calculate the individual’s ability to manage monthly payments and repay debt).
- Lenders evaluate both the savings and the current account of self-employed individuals. Business income must be documented by either personal or business bank statements.
- There is a special scheme of transferring home loans to new lenders called “Surrogate Balance Transfer Loans”. In “Surrogate Balance Transfer Loans”, the home loan is granted only by examining bank statements of the self-employed individual.
- All your bonus components, reimbursements, additional income, salary increment, rental income etc. will be verified in your bank statement.