How Do Mortgage Lenders Check and Verify Bank Statements?

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. 

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 company or 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. 

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 of cash reserve on hand in another account to ensure the borrower can still pay the mortgage if they lose their income stream.