How do mortgage lenders check and verify bank statements?

Borrowers who wish to obtain a mortgage loan to purchase or refinance a home must be approved by a lender in order to obtain their loan. Banks must verify the borrower’s financial information and may require that a Proof of Deposit 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.

Understand how lenders verify bank statements

Banks and mortgage lenders underwrite loans based on various 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 must verify that the funds needed to purchase the home have been accumulated in a bank account and accessible to the lender.

A proof of deposit is proof that money has been deposited or 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 looking to buy.

For example, in the case of a typical mortgage loan, a borrower can put 20% less towards the purchase of a house. If it is a $100,000 home, the borrower will need to downpay $20,000. The mortgage lender would use proof of deposit to verify that the borrower has $20,000 in their bank account for the down payment. Additionally, 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 confirmation of the loan applicant’s financial information. Although 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 checking, savings, individual retirement account (IRA), or certificate of deposit (CD)
• Open or closed status and opening date
• Names of account holders, who are authorized signatories 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) plus interest paid in the last two statement periods
• Account closing date and closing balance (if applicable)
• If it is a savings or a certificate of deposit, the bank may ask for the length of the term, the interest rate, the interest paid and any penalties for early withdrawal

A lender may refuse to fund a mortgage or allow the prospective buyer to use account funds for mortgage and closing cost purposes if the financial information does not adequately meet verification requirements.

Why verification of 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 satisfy requirements for certain government-insured loans where the source of down payment funds must be known to the mortgage approval.

While performing the verification process, some lenders may reject rare account overdrafts. However, a consumer with many overdrafts in the two to three months before closing 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 request proof or an audit trail of the origin of a borrower’s deposit, particularly 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. Accordingly, a bank may request a letter from the person who gave the money.

Additionally, a bank may want to see proof of several months of cash reserve in another account to ensure the borrower can still pay the mortgage if they lose their income stream.