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.
How can bank statements be verified? ›
Verify logos, stamps, watermarks, and the bank's contact information conform to official branding and details confirmed directly with the financial institution. Fake bank statements often contain incorrect fonts, colors, or info. Even slight deviations could betray inauthentic documents.
What do mortgage lenders look at on 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 ...
Do mortgage lenders look at spending habits? ›
Mortgage lenders will often look at your spending habits to determine if you are a responsible borrower. They will look at things like how much you spend on credit cards, how much you spend on groceries, and how much you spend on entertainment.
Do lenders check your bank account before closing? ›
Your mortgage lender will review bank statements to ensure you have enough money to close the loan. But a dollar amount isn't all they look for. Here are items that can cause mortgage delays or even put your approval at risk.
What is a verifiable bank statement? ›
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? ›
The bank statement template usually has a header & footer, main content on top, and tables that contain transaction information and other details. So, you can open UPDF and click "File" > "Open" and choose your PDF bank statement. Click "Edit PDF" and then double-click on a text to make it editable.
Do banks verify bank statements for loan? ›
The entire verification process for bank statements for loan approval is designed to safeguard both parties—lenders and borrowers. It might seem a bit lengthy. But, it makes sure loans go to trustworthy and able borrowers. Let's take a detailed look at the entire process.
Lenders need to know that you have enough money coming in to make your mortgage payments on time. Underwriters look for regular sources of income, which could include paychecks, royalties and court-ordered payments such as alimony.
How far back do mortgage lenders look at income? ›
If you do apply for a bank statement loan, most lenders require anywhere from 12 to 24 months' worth of bank statements. This will help them determine your cash flow and ensure you have enough money saved for a down payment, closing costs, and a steady stream of income to pay your monthly mortgage premium.
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.
The intention of mortgage fraud is typically to receive a larger loan amount than would have been permitted if the application had been made honestly. For example, by intentionally falsifying information on a mortgage application. Mortgage fraud schemes include straw buying, air loans, and double-sales.
What types of red flags will underwriters tend to notice more of? ›
Credit Issues: One of the most common underwriting challenges is credit issues. A borrower's credit score is one of the most important factors in determining their eligibility for a mortgage. If a borrower has a low credit score, it can be difficult to secure a loan or to qualify for favorable terms.
What are red flags in loan underwriting? ›
Inconsistent Information: When information provided by an applicant contradicts itself or is inconsistent across documents, it's a clear sign of potential fraud. Lenders should closely examine discrepancies in addresses, employment history, income details, and more.
How far back does a mortgage lender look at bank statements? ›
How far back do mortgage lenders look at bank statements? Generally, mortgage lenders require the last 60 days of bank statements. To learn more about the documentation required to apply for a home loan, contact a loan officer today.
Do all mortgage companies look at bank statements? ›
Generally, yes. You'll almost certainly be required to submit bank statements to be considered for a mortgage loan — at least one to two months' worth.
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 that the down payment be seasoned, as well. 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.
