Banks and other home loan lenders have access to a lot of information when assessing your home loan application, more than you might be aware of. This can impact your application, often in a negative way.
When applying for a home loan with a bank where you already hold accounts - such as a credit card or personal loan account - its home loan application team is able to access all related information. Even worse, if you have your salary deposited and conduct your day-to-day banking with the same bank, it can see this information.
So, the lender you're applying for a home loan from might have access to much of your financial information, oftentimes without you realising it, and will use this as part of its assessment process.
Image: Julian Finch
Will a bank look at your spending habits when you apply for a mortgage?
Different lenders have different policies when it comes to home loan assessment.
Many lenders don't require your personal banking statements as part of your mortgage application. However, if your regular banking is done with a different bank to that you're applying for a home loan from, it might seek evidence of your genuine savings and the deposit you plan to put forward for a purchase. This is particularly the case if you're likely to incur Lenders Mortgage Insurance (LMI).
While applying for a home loan through a different bank than that you bank with day-to-day might spare you from providing some information unknowingly, credit reporting agencies might also spill beans you didn't know were there.
It's important to remember that some utility companies, mobile phone companies, and the likes can report you to credit reporting bureaus such as Equifax as a late payer if you continually pay your bills after their due date. This may impact your overall credit score, and the bank takes this into consideration when assessing your home loan application.
Critically, once a bank knows something - possibly that it didn't need to know or wouldn't have asked for - it can't unknow it, and this can be problematic in many circumstances.
I've been rejected for a home loan before. Do I need to disclose this?
Home loan decline rates are around 50% in Australia. There really isn't any good reason why they should be this high. If you work with the right finance professional who understands your circumstances and connects you with the most appropriate lender, you should achieve a good outcome.
Having said this, if you are declined by one bank and later apply to another, you don't have to declare your rejection. While any application for finance will show up as an enquiry on your credit report, whether or not that loan was approved or declined isn't recorded.
There may be instances wherein a home loan lender asks whether a recent enquiry resulted in a loan being taken out. In the event you've had an application declined recently, the best answer to give would likely be 'it wasn't proceeded with'.
See also: How long should you wait before you reapply for a mortgage?
How to protect your information when applying for a home loan
There are plenty of reasons you mightn't want a potential lender to rifle through your incomings and outgoings, and it doesn't mean you have something to hide. It might be that you simply don't want to share information you don't need to.
Commonly, the best approach to reducing the visibility of your spending and financial commitments when applying for a mortgage is to be honest. Provide your bank or lender with all the information it requires to assess your application upfront.
Having said this, different lenders have different requirements and some may require you to provide more information than others due to their assessment criteria.
This is one of the key reasons why I recommend people wanting to refinance or apply for a new home loan speak to an experienced finance professional or mortgage broker, like those at Finch Financial. We know what type of information the banks can and can't see and we also know how to ensure you provide information to the bank that is going to support your loan application, not hinder it.
Being honest with your broker is critical. It's then up to the broker to find you the right lender to suit your situation.
Image by Gabrielle Henderson on Unsplash
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