Where ever you go or whatever you do,documents play an important role in your life. We now a days try to maintain all kind of documents related to banks, properties, schools, offices etc.
Similarly, the documentation for the home loan procedure has always been a nightmare for many home loan applicants. The vast documentation is reckoning not only on your time but also on your peace of mind. There are multiple limitations built into such documents.
Many home loan borrowers feel that the information and documents asked by the Banks/NBFC’s are unnecessary.
Lenders expect to be very careful while reviewing the required documents. Only carrying a good credit score cannot let you escape from the paperwork towards your home loan process.
The process becomes too tedious if the borrower does not have a clear understanding of the purpose behind each document being asked by the lender during the process.
One such document involved in home loan process which the applicant has to submit for home loan application assessment is the Bank Statement.
Here Mudrahome comes to you to know why Banks/ NBFC’s need to see your financial statements.
• To understand your financial situation the lenders requests ask for the latest six months of bank statement.
• This is the first thing how the Banks/NBFC’s get to know about all the assets mentioned in the home loan application belong to you and you have paid for them. This can be verified from your bank account statement (i.e. your savings/ salary account). Lenders want to know how much money you have in the bank, and how long it has been there.
• Your bank statement is used by the Bank/ NBFC to calculate the average monthly balance being maintained by you. Higher amount of average monthly balance shows that you are quite controlled on your expenses.
• Regular salary of every month should also reflect in your bank statement.
• If there are any kind of additional deposits/credits in your bank account apart from your regular income then you should also have the supporting documents to prove where these funds came from.
• Your bank statement also reflects the equated monthly installments (EMIs) paid on all your existing loans and advances.
• The cash amount that you pay towards your home loan or the amount of margin money receipts — MMRs should also reflect in your bank statements. Banks/ NBFC’s allows only a very nominal percentage of the EMI’s to be paid in cash. So, you must ensure that if you have to make any cash payment then it has to be paid by cheque.
• In any case, if your lender comes to know that you have taken some amount of money from a friend or family, to take the home loan or pay the initial down payment, the lenders will not only assess your bank statement in detail but the lender will ask for the bank statements of this family/friend’s too to verify the transfer of funds on both ends.
• Banks/ NBFC’s want to be sure that the ample of funds that you have in your bank account(s) to cover your down payment, closing costs and other related home loan expenses are sufficient enough.
• The lenders will take all necessary measures to source all the recent deposits/credits in your bank account. Any mysterious funds (i.e. deposits for which the source cannot be found) can be a deal-breaker during the underwriting process as it creates doubts on your earnings.
• Bank statements also help to calculate Debt-to-Income ratio (i.e. a financial instrument used to calculate the individual’s ability to manage monthly payments and repay debt).
• Both the savings and the current account of self-employed individuals are evaluated by the Banks/ NBFC’s. Business income should be documented by either personal or business bank statements.
• All your bonus components, reimbursements, additional income through rent or shares, salary increments etc. reflecting in your financial statement will also be verified by the Banks/ NBFC’s and other financial institutions.
The above points clearly states the importance of the financial documents or the banking statements so as to move further with any kind of secured or unsecured debt. Especially the secured loans such as Loan Against Property and Home Loans hold a major significance so that you can not only borrow but also avail the best terms for your loan.