When applying for a mortgage, you expect lenders to scrutinize your income, credit score, and debt-to-income ratio. But did you know that your Netflix subscription—or any other recurring expense—could play a role in your approval?
While a $15-per-month streaming service may seem insignificant, lenders are increasingly looking at all aspects of your financial behavior, including discretionary spending. Here’s how something as small as your entertainment subscriptions could influence your mortgage approval.
Open Banking and Subscription Spending
The rise of open banking has allowed lenders to gain deeper insights into your financial habits. Instead of just looking at credit reports and pay stubs, some lenders now use AI-driven tools to analyze bank transactions. That means your Netflix, Hulu, and Amazon Prime subscriptions, along with gym memberships, meal delivery services, and other recurring expenses, may be factored into their risk assessment.
Lenders want to determine how much disposable income you have after fixed expenses. If your bank statements reveal excessive discretionary spending, they might question whether you can comfortably afford your mortgage payments.
Debt-to-Income Ratio and Lifestyle Spending
Your debt-to-income (DTI) ratio is one of the most critical factors in mortgage approval. It’s calculated by dividing your total monthly debt payments by your gross monthly income. While streaming subscriptions aren’t technically considered “debt,” they are recurring financial obligations that impact how much cash you have left at the end of each month.
If your DTI is already near the threshold lenders consider acceptable—typically under 43% for most conventional loans—additional expenses, even small ones, could make a difference. Lenders may view excessive subscriptions or high entertainment spending as a sign that you are stretching your budget too thin.
How to Improve Your Mortgage Readiness
If you’re planning to apply for a mortgage soon, consider tightening up your spending habits:
- Audit Your Subscriptions: Take a close look at all your recurring charges. Cancel unused or unnecessary services to reduce your financial obligations.
- Minimize Discretionary Spending: In the months leading up to your mortgage application, try to keep entertainment and luxury expenses in check. A conservative approach to spending could improve your mortgage eligibility.
- Show Consistent Savings: Lenders love to see a healthy savings account. Reducing subscriptions and unnecessary expenses can help you save more, demonstrating financial stability.
- Keep Bank Statements Clean: Since lenders often request two to three months of bank statements, avoid any unusual spending patterns that could raise red flags.
While a single Netflix subscription is unlikely to make or break your mortgage approval, your overall spending habits do matter. The rise of open banking means lenders can see more of your financial life than ever before. Taking proactive steps to manage your subscriptions and discretionary spending can strengthen your mortgage application and improve your chances of approval.
