Your lender will ask you for a variety of documents when you buy a home and need a mortgage. Among the proof of income, debts, and assets, you may have to provide a verification of deposit. Just what is this and how do you go about getting it?
What is a Verification of Deposit?
The Verification of Deposit is a specific form your lender may ask your bank to complete. It shows the lender pertinent information about your bank account that helps them make an underwriting decision. The VOD will contain information such as:
- Name and address of the depositing bank
- The type of bank account you hold at the bank
- The name(s) on the bank account
- The account number
- The amount of the current balance
- The average balance over the last two months
- The date the account was opened
- Loan number and date of any loans at that bank
- The original amount of the loan
- The current balance of the loan
- The amount of the monthly payments
- The number of late payments made (if any)
Why do Lenders Need a Verification of Deposit?
You might wonder why a lender would need the Verification of Deposit if you already provided your bank statements. Most loan programs require you to provide the last 2 months of bank statements to prove your assets. You may need to verify assets to prove that you have reserves on hand (money to cover your mortgage if your income changes) or to cover your down payment and closing costs.
The Verification of Deposit is like third-party verification of the information you provided. It’s the lender’s way of making sure the information you provided was true. While it’s unlikely that borrowers altered their bank statements, the lender needs to be sure beyond a reasonable doubt.
If the lender can’t verify that the funds belong to you, it could alter your approval. The lender would then have to determine where the funds originated and if they affect your debt ratio. Certain loans do allow you to use funds provided as a gift, but they have certain steps you must follow in order to use them.
Under no circumstances can you just deposit money into your account and assume you can use it for a mortgage. The lender must be able to verify the origination of the funds and prove that they belong to you one way or another.
How a VOD Can Hurt Your Loan
You might think the Verification of Deposit isn’t a big deal. Your lender will see that you have the money you said you had. But, there is a way it can hurt your loan.
If you made large deposits recently, it may throw up a red flag for the lender. They will need to figure out where the funds came from and how you intend to use them. If you have any large deposits that you cannot tie to your income, you will need proof of where the funds originated.
For example, if you sold an extra car you owned in order to cover the down payment on a home, you’ll need proof of the sale. The Bill of Sale and a copy of the check will usually suffice. The same is true for the sale of stocks or any other asset. If you received a gift, you’ll need a gift letter from the donor as well as proof of where their assets originated.
The bottom line is if you have any large deposits, make sure you have a paper trail to prove their origination. The Verification of Deposit is just a way for lenders to make sure the money you state is yours actually belongs to you. As long as you are honest throughout the loan process, the VOD shouldn’t hurt your loan. If anything, it may help get you the approval that you need.