How Do Mortgage Lenders Check and Verify Bank Statements?

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How Do Mortgage Lenders Check and Verify Bank Statements?

To get a loan, borrowers must have their application for a mortgage to buy or refinance a property authorized by a lender. Banks must confirm the borrower’s financial data, and they could ask for a proof of deposit (POD) or verification of deposit (VOD) form to be filled out and sent to the borrower’s bank. The mortgage lender may request at least two months’ worth of bank statements as evidence of deposit from the borrower.

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.
  • A POD is used by mortgage lenders to confirm that there are enough cash available to cover the down payment and closing fees for a property.

Understanding How Lenders Verify Bank Statements

Banks and mortgage lenders evaluate loan applications using a range of factors, such as a borrower’s creditworthiness, income, assets, and savings. The mortgage provider could need evidence of a down payment when a borrower is purchasing a house. The lender must confirm that the money needed to buy the house has been saved up in a bank account that is open to it.

A proof of deposit is documentation indicating cash has been placed in a bank account or has accumulated there. A proof of deposit is used by a mortgage company or lender to ascertain if the borrower has saved enough money for the down payment on the house they want to buy.

For instance, a borrower may contribute 20% of the cost of a property as a down payment in a standard mortgage. The borrower would be required to make a down payment of $20,000 for a $100,000 house. A proof of deposit would be used by the mortgage lender to confirm that the borrower really does have $20,000 in their bank account for the down payment. The lender must also make sure there are enough money on hand to cover the closing fees connected with a new mortgage. The term “closing costs” refers to extra expenses such taxes, title searches, title insurance, and deed-recording fees. You may see the effect of various rates on your monthly payment with a mortgage calculator.

  Silent Second Mortgage Definition

Two of the borrower’s most recent bank statements are normally sent to the bank or mortgage business, who then confirms the information by calling the borrower’s bank.

Types of Financial Information Verified

When a lender sends a VOD form to a bank, the bank confirms the financial details of the loan application. Some of the most typical sorts of information needed when validating bank statements, while standards might vary from bank to bank, include:

  • Account number
  • Account types include certificates of deposit, checking accounts, savings accounts, and individual retirement accounts (IRAs) (CD)
  • Status (open or closed) and opening date
  • Names of the account holders who are authorized signers on the account
  • Information about balances, including current amount and average balance history over the last two statement periods.
  • Interest paid for the two most recent statement periods, as well as the current interest rate (if applicable),
  • Date of account closure and final amount (if applicable)
  • The bank may request information on the savings account’s or certificate of deposit’s term, interest rate, interest received, and any early withdrawal fees.

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.

  Annual Mortgage Statement Definition

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.

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