Borrowers seeking a mortgage to purchase or refinance a home must be approved by a mortgage lender 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 deciding whether to extend credit.
- Lenders use proof of deposit to verify a borrower's financial information.
- Mortgage lenders use a POD to verify there are 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 various 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 must verify that the funds required for the home purchase are in a bank account and accessible to the lender. This is the proof of deposit.
For example, in a typical mortgage, a borrower might put 20% down towardspurchasingf a home. If it's a $300,000 home, the borrower would have to put down $60,000 upfront. The mortgage lender would use a proof of deposit to verify that the borrower actually has $60,000 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 with two of the most recent bank statements. Then, 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 can 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 two to three months 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 were 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, 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 the money.
Also, a bank may want proof of several months ofcash reservein another account to ensure the borrower can still pay the mortgage if they lose their income stream.
How Do Mortgage Lenders Verify Bank Statements?
Some lenders ask you to submit bank statements that they will go over manually or electronically, while other lenders might call your bank directly and ask for verification.
What Do Mortgage Loan Officers Look for in Bank Statements?
Overall, they're looking to see how healthy your finances are. To do this, they look at all of your financial accounts, balance information, account holders, interest information, and account transfers.
How Closely Do Underwriters Look at Bank Statements?
It depends on the underwriter. Some are satisfied by simply looking at the primary information on two months' bank statements, while others may request proof of deposit. The most thorough underwriters may ask for statements and proof of deposit.
The Bottom Line
Getting your bank statements verified by a lender might feel like a painstaking part of the mortgage process, but it reassures the lender that you have the funds to close on the home. Working with your lender to ensure they have all the necessary information can help the process go smoother.
FAQs
How Closely Do Underwriters Look at Bank Statements? It depends on the underwriter. Some are satisfied by simply looking at the primary information on two months' bank statements, while others may request proof of deposit. The most thorough underwriters may ask for statements and proof of deposit.
Do mortgage lenders check your bank statements? ›
Bank statements are just one of many factors lenders look at when you apply for a mortgage. Almost all areas of your personal finances will be under the microscope; including your credit score, existing debts, and any source of income you'll use to qualify for the loan.
How can bank statements be verified for accuracy? ›
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? ›
They Confirm You're Able To Make Your Mortgage Payments
Your lender typically needs to verify your income to ensure that you have enough money coming in to make your monthly payments. They also check your account balance to confirm that you have enough money in your account to cover a down payment.
Can you redact bank statements for a mortgage? ›
These will need to be consecutive and complete statements, so you can't skip certain months, leave off individual pages or redact any information. The lender will look through these statements to analyze deposit frequency, patterns and total income.
How do mortgage companies verify bank statements? ›
How Do Mortgage Lenders Verify Bank Statements? Some lenders ask you to submit bank statements that they will go over manually or electronically, while other lenders might call your bank directly and ask for verification.
What are red flags on bank statements for mortgages? ›
Large sums of cash or unexplained transfers can trigger extra scrutiny. A borrower needs to have clear documentation for all deposits. Finally, unexplained payments to individuals or undisclosed accounts are a big red flag. Lenders need to see a clear picture of where a borrower's money is going.
Can banks detect fake bank statements? ›
Thorough verification of bank statements has become inevitable for financial institutions to detect fake bank statements and avoid losses. While manual verification can detect fake bank statements to a certain extent, relying solely on this process may only sometimes be accurate and effective.
What software is used to verify bank statements? ›
DIRO is the new gold standard when it comes to bank account verification. Compared to other methods of verification, DIRO can instantly verify bank data with automated user consent. DIRO can verify bank account information from 44,000 banks in 195 countries.
Can we edit a bank statement for loan purpose? ›
If you're using them to support an application for a loan or credit, or for a visa, then, dear God yes, it's very very illegal. It is, in fact, fraud, and you will go to prison and/or be deported for it. Don't do it, is what I'm hinting at here.
You don't want to tell the mortgage lender that the house is in disrepair. You also don't want to suggest you don't know where your down payment money is coming from. Finally, don't give your lender reason to worry if your income will stay stable.
How far back do mortgage lenders look at your 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.
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.
What do mortgage lenders look at on bank statements? ›
Underwriters will want to ensure you can affordably and reliably meet your mortgage repayments. Your bank statements will reflect your income, any regular outgoings and give a snapshot of your spending.
How do I clean up my bank statement for my mortgage? ›
Tips To Improve Your Bank Statements for a Mortgage Application
- Keep Your Account in the Black. Stay out of your overdraft. ...
- Trim Non-Essential Spending. ...
- Steer Clear of Gambling Transactions. ...
- Tackle Your Debts. ...
- Save Regularly. ...
- Keep Your Income Stable. ...
- Automate Your Finances. ...
- Mind Your Subscriptions.
For most residential mortgages, lenders typically ask applicants to provide bank statements for the past three months. However, some lenders including Santander, Halifax, and Virgin Money have informed applicants that they no longer need bank statements in 2024.
Which mortgage lenders don't ask for bank statements? ›
For most residential mortgages, lenders typically ask applicants to provide bank statements for the past three months. However, some lenders including Santander, Halifax, and Virgin Money have informed applicants that they no longer need bank statements in 2024.
Can I be denied a mortgage due to overdrafts? ›
If you experienced repeated overdrafts -- such as three or more over the past twelve months -- this may be a sign that you have challenges managing your finances and debts, which may cause the lender to reconsider your application.
How do lenders verify income for a mortgage? ›
Mortgage lenders usually verify income and employment by contacting a borrower's employer directly and reviewing recent employment and income documentation. These documents can include an employment verification letter, recent pay stubs, W-2s, or anything else to prove an employment history and confirm income.
