Borrowers seeking a mortgage to purchase or refinance a home must be approved by a lender in order to get their loan. Banks need to verify the borrower's financial information and may require a proof or verification of deposit (POD/VOD) form to be completed and sent to the borrower's bank. A proof of deposit may require the borrower to furnish at least two months of bank statements to the mortgage lender.
Key Takeaways
- Mortgage lenders require financial information from potential borrowers when making their decision whether to extend credit.
- A proof of deposit is used by lenders to verify the financial information of a borrower.
- Mortgage lenders use a POD to verify there's sufficient funds to pay the down payment and closing costs for a property.
Understanding How Lenders Verify Bank Statements
Banks and mortgage lenders underwrite loans based on a variety of criteria including income, assets, savings, and a borrower's creditworthiness. When buying a home, the mortgage lender may ask the borrower for proof of deposit. The lender needs to verify that the funds required for the home purchase have been accumulated in a bank account and accessible to the lender.
A proof of deposit is evidence that money has been deposited or has accumulated in a bank account. A mortgage companyor lender uses a proof of deposit to determine if the borrower has saved enough money for the down payment on the home they're looking to purchase.
For example, in a typical mortgage, a borrower might put 20% down towards the purchase of a home. If it's a $100,000 home, the borrower would have to put down $20,000 upfront. The mortgage lender would use a proof of deposit to verify that the borrower actually has a $20,000 in their bank account for the down payment. Also, the lender will need to ensure adequate funds are available to pay the closing costs associated with a new mortgage. Closing costs are additional costs that can include appraisal fees, taxes, title searches, title insurance, and deed-recording fees.A mortgage calculator can show you the impact of different rates on your monthly payment.
The borrower typically provides the bank or mortgage company two of the most recent bank statements in which the company will contact the borrower's bank to verify the information.
Types of Financial Information Verified
A lender that submits a VOD form to a bank receives confirmation of the loan applicant’s financial information. Although the requirements can vary from bank-to-bank, some of the most common types of information required when verifying bank statements include:
- Account number
- Account type, such as a checking, savings, individual retirement account (IRA), or certificate of deposit (CD)
- Open or closed status and open date
- Account holder names, which are the authorized signers on the account
- Balance information, including current balance as well as average balance history over the last two statement periods
- Current interest rate (if applicable) as well as interest paid over the two most recent statement periods
- Account closed date and the balance at the close (if applicable)
- If it's a savings or a certificate of deposit, the bank may ask for the length of the term, interest rate, interest paid, and any early withdrawal penalties
A lender may refuse to finance a mortgage or allow the potential buyer to use the funds from the account for the purposes of the mortgage and closing costs if the financial information doesn't adequately satisfy the verification requirements.
Why Verification of Bank Statements is Needed
Lenders have the discretion to request your bank statements or seek VOD from your bank; some lenders do both. Lenders that use both VODs and bank statements to determine mortgage eligibility do so to satisfy the requirements of some government-insured loans where the source of down payment funds must be known for mortgage approval.
In performing the verification process, some lenders may dismiss rare account overdrafts. However, a consumer with numerous overdrafts within the two- to three-month period before closing on a home may be considered a risk to the bank.
Special Considerations
A bank or mortgage company may also want to see evidence of how the funds came to be deposited into the borrower's bank account. The bank or lender may also ask for proof or an audit trail of where a borrower's deposit originated from particularly if it was a gift. Some financial institutions impose limits on how much can be gifted to borrowers to help with the down payment. As a result, a bank may request a letter from the person who gifted money.
Also, a bank may want to see proof of several months ofcash reserveon hand in another account to ensure the borrower can still pay the mortgage if they lose their income stream.
FAQs
Lenders verify bank statements in several ways and will sometimes contact the bank to verify validity. Some will only verify your paper documents, while others accept electronic documentation. A few import income and asset information digitally, eliminating your role as the middleman.
How do they verify bank statements when getting a mortgage? ›
The borrower typically provides the bank or mortgage company two of the most recent bank statements in which the company will contact the borrower's bank to verify the information.
Do mortgage lenders see your bank statements? ›
What will lenders look for in my bank statements? Lenders will usually ask for bank statements dating back to at least 3 months, and the underwriter may use these statements to determine your eligibility on a variety of factors.
How can bank statements be verified? ›
Verifying involves cross-checking statement details against other financial documents, scrutinizing statement formatting for anomalies, confirming account ownership ties back to the customer, contacting the bank directly, and potentially leveraging technologies like OCR, AI and digital forensics to automate analysis.
What do mortgage loan officers look for in bank statements? ›
Lenders typically look for 2 months of bank statements from potential borrowers, which provides enough data to assess your income consistency, spending habits, account balances and other crucial financial information. It's possible the lender may ask to see more bank statements for additional insights in process, too.
What are the red flags on bank statements for mortgage? ›
Red flags on bank statements for mortgage qualification include large unexplained deposits, frequent overdrafts, irregular transactions, excessive debt payments, undisclosed liabilities, and inconsistent income deposits, which prompt lenders to scrutinize the borrower's financial stability and may require further ...
What do underwriters look at on bank statements? ›
Your recent bank statements show if you can afford the down payment and closing costs, as well as monthly mortgage payments. As they are essential to this, your lenders check bank statements, deposits, and withdrawals for red flags — particularly negative balances resulting from overdrafts or non-sufficient funds fees.
Do I have to disclose all bank accounts to a mortgage lender? ›
Mortgage lenders require you to provide them with recent statements from your account with readily available funds, such as a checking or savings account. In fact, they'll likely ask for documentation of any accounts that hold monetary assets.
Do underwriters look at Venmo? ›
When your mortgage lender or underwriter sees a repeat transaction on your bank statement coming from Venmo – they want to know if you have debt you're paying that they should know about.
How to clean up a bank account for a mortgage? ›
In summary:
- Review your bank statements.
- Eliminate unnecessary direct debits.
- Budget and spend more wisely.
- Review and switch your major costs to cheaper options.
- Put spending on credit card - and pay the full balance every month.
- Think of ways in which you might use your assets to increase your income.
Key Takeaways: A certified bank statement is an official document verified by the bank to be accurate and untampered, providing an extra security layer for financial transactions.
Is it possible to edit a bank statement? ›
Yes, with the right document editing tool, like EaseUS PDF Editor, users can change the name or value on the bank statement digitally.
Do banks verify bank statements for loan? ›
The applicants also need to provide their bank statements for loan approval. Lenders may request statements ranging from the last six months to several years. The applicant should submit statements from all main accounts for a complete analysis.
How long does money need to be in your account for a home loan? ›
Over the last several years, however, lenders have increasingly required not only that you have the money to cover a down payment but also that the down payment be seasoned. That means that the funds must have existed in the borrower's bank account for a specific amount of time, usually at least 60 days.
Will opening a bank account affect my mortgage application? ›
Closing and opening new bank accounts can be a major red flag to mortgage lenders, even if the intentions are pure. To lenders, it will appear that you are trying to shuffle funds around to navigate hidden debt that isn't recorded.
What credit score do you need to get a mortgage? ›
Credit score and mortgages
The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).
What do mortgage underwriters verify? ›
When trying to determine whether you have the means to pay off the loan, the underwriter will review your employment, income, debt and assets. They'll look at your savings, checking, 401k and IRA accounts, tax returns and other records of income, as well as your debt-to-income ratio.
