How do mortgage lenders check and verify bank statements?

Borrowers who are looking for a mortgage to buy or refinance a home must be approved by a lender in order to get their loan. Banks must verify the borrower’s financial information and may require that a Proof or Verification of Deposit (POD / VOD) form be completed and sent to the borrower’s bank. Proof of deposit may require the borrower to provide at least two months of bank statements to the mortgage lender.

Key points to remember

  • Mortgage lenders need the financial information of potential borrowers when making their decision whether or not to extend credit.
  • Proof of deposit is used by lenders to verify a borrower’s financial information.
  • Mortgage lenders use a POD to verify that there are enough funds to pay the down payment and closing costs of a property.

Understanding How Lenders Check Bank Statements

Banks and mortgage lenders make loans based on a variety of criteria, including the borrower’s income, assets, savings, and creditworthiness. When buying a home, the mortgage lender may ask the borrower for proof of deposit. The lender should verify that the funds necessary to purchase the home have been accumulated in a bank account and accessible to the lender.

Proof of deposit is proof that money has been deposited or has accumulated in a bank account. A mortgage company or lender uses proof of deposit to determine if the borrower has saved enough money for the down payment on the home they are considering buying.

For example, in a typical mortgage loan, a borrower can spend 20% less on the purchase of a home. If it is a $ 100,000 home, the borrower will need to pay $ 20,000 upfront. The mortgage lender would use proof of deposit to verify that the borrower actually has $ 20,000 in their bank account for the down payment. In addition, the lender will need to ensure that sufficient funds are available to pay the closing costs associated with a new mortgage. Closing costs are additional costs that may include appraisal fees, taxes, title searches, title insurance, and deed registration fees. A mortgage calculator can show you the impact of different rates on your monthly payment.

The borrower usually provides the bank or mortgage company with two of the most recent bank statements in which the company will contact the borrower’s bank to verify the information.

Types of audited financial information

A lender who submits a VOD form to a bank receives a confirmation of the financial information of the loan seeker. While the requirements may vary from bank to bank, some of the most common types of information required when verifying bank statements include:

  • Account number
  • Type of account, such as check, savings, individual retirement account (IRA), or certificate of deposit (CD)
  • Open or closed status and opening date
  • Names of account holders, who are the authorized signing officers on the account
  • Balance information including current balance as well as historical average balance over the last two statement periods
  • Current interest rate (if applicable) plus interest paid during the two most recent statement periods
  • Account closing date and closing balance (if applicable)
  • If it is a savings or a certificate of deposit, the bank can ask for the duration of the term, the interest rate, the interest paid and any early withdrawal penalties.

A lender may refuse to finance a mortgage or allow the potential buyer to use the funds in the account for the purposes of the mortgage and closing costs if the financial information does not adequately meet the verification requirements.

Why checking bank statements is necessary

Lenders have the discretion to request your bank statements or request VOD from your bank; some lenders do both. Lenders who use both VODs and bank statements to determine mortgage eligibility do so to meet the requirements of certain government-insured loans for which the source of the down payment must be known for the loan. mortgage loan approval.

While performing the verification process, some lenders may reject rare account overdrafts. However, a consumer with a large number of overdrafts in the two to three months before a home is closed can be seen as a risk to the bank.

Special considerations

A bank or mortgage company may also want to see evidence of how the funds were deposited into the borrower’s bank account. The bank or lender may also ask for proof or an audit trail of the origin of a borrower’s deposit, especially if it was a gift. Some financial institutions place limits on the amount that can be offered to borrowers to help with the down payment. As a result, a bank may request a letter from the person who offered the money.

Additionally, a bank may want to see proof of several months of cash reserve in another account to ensure that the borrower can still pay the mortgage if he loses his income.

Shawanda H. Saldana