do banks ask for proof of deposit

Do Banks Ask for Proof of Deposit? What You Need to Know

When applying for a mortgage to purchase a home, lenders will often request proof of deposit (POD) to verify that borrowers have enough funds for a down payment. But what exactly is POD, and why do lenders require it? This article provides a comprehensive overview of proof of deposit, including what it is, why banks ask for it, and how borrowers can provide valid POD to mortgage lenders.

What is Proof of Deposit?

Proof of deposit (POD) refers to documentation showing that a specific amount of funds has been deposited into a bank account. There are two main types of POD:

• Down Payment Verification When applying for a mortgage lenders want to confirm borrowers have enough cash on hand for a down payment. So they will ask for bank statements deposit slips, or a letter directly from the bank verifying the account balance. This allows lenders to validate the down payment money is there and ready to use.

• Deposit Amount Verification Banks also use POD to confirm the amount written on deposit slips matches the amount on checks or cash being deposited This occurs when processing deposits and helps ensure the accuracy of transactions

Why Do Lenders Require Proof of Deposit?

There are a few key reasons mortgage lenders require POD from borrowers:

• Validate Down Payment Funds: As mentioned, POD allows lenders to confirm borrowers have the necessary funds for a down payment and closing costs. Lenders want to see money is available and ready to disburse at closing.

• Check Source of Funds: Lenders may also want to verify the source of the down payment, especially for large deposits. They do this to ensure the funds come from legal sources and are the borrower’s own funds. Gifts and certain loans may be limited.

• Assess Risk POD gives lenders greater confidence borrowers can fulfill the transaction It demonstrates financial readiness and allows lenders to better assess lending risk.

• Comply with Regulations: Finally, POD helps lenders comply with mortgage regulations related to verifying borrower assets and the legality of funds. Having POD protects lenders.

What Do Lenders Accept as Proof of Deposit?

Lenders will generally accept a few common types of documentation as valid POD:

• Bank Statements: Recent monthly or quarterly bank statements from checking, savings, CDs, or other cash accounts. Statements should show account balances over time.

• Verification Letter: An official letter from the bank verifying the account holder and current balance on deposit. This often carries more weight.

• Copy of Check Images: For cashier’s checks or money orders being used for the down payment, lenders may request copies of the cleared checks.

• Wire Confirmation: If funds are being wired to escrow, the wire confirmation showing amount sent and received provides POD.

• Deposit Receipts: Receipts for cash or check deposits may supplement other POD. But receipts alone are often insufficient.

How to Get Proof of Deposit from Your Bank

Getting valid POD is easy once you know what lenders require. Simply follow these steps:

• Contact Your Bank: Reach out to your banking institution and share you need POD for a mortgage application. They are very familiar with these requests.

• Request Statements: Ask them to provide the last 2-3 months of full account statements showing your opening and closing balances. Digital or printed statements are fine.

• Inquire About Verification Letter: See if you can get an official letter from them verifying your name, account number, and current funds on deposit. This “Verification of Deposit” carries a lot of weight.

• Review Documents: Look over the POD when you receive it to make sure all personal details and account numbers are correct. The information should match your application.

• Submit to Lender: Finally, deliver the POD to your mortgage lender along with any other statements or records requested. Communicate with your loan officer to ensure you submit everything needed. With valid POD in hand, you can then get fully approved.

Does Providing POD Give Banks Access to Your Accounts?

An important concern borrowers may have is whether giving POD to lenders grants them access to bank account balances and transaction history. The answer is no – standard POD such as statements and verification letters do not authorize any access or control over your accounts.

Lenders can only utilize POD to validate your current assets, funds on deposit, and source of down payment as part of underwriting. They cannot withdraw or deposit money. Rest assured POD is designed to protect your privacy and security while allowing lenders to verify your financial readiness.

How Much POD is Needed for Mortgage Approval?

The amount of POD needed depends on the lender and details of your home purchase. Some general POD requirements:

• Down payment Amount: Enough POD to cover your full down payment and closing costs. If you have $50k down, POD should show at least that on deposit.

• 60-90 Days of Statements: Lenders often ask for 2-3 months of full bank statements to analyze deposits and balances over time.

• All Cash Accounts: You may need to provide POD for all checking, savings, or other cash accounts – not just the account holding down payment funds.

• Gift Letters: Any large gift deposits will likely require a gift letter validating the source and availability of those gift funds.

Talk to your loan officer about the exact POD requirements so you are prepared. Having insufficient POD could delay approval, so work closely with your lender.

In Conclusion

Providing valid proof of deposit is a key part of getting mortgage approval and purchasing your dream home. While POD gives lenders a glimpse into your finances, it is required information they must collect to verify down payment funds and mitigate lending risk. With an understanding of exactly what POD is, why banks need it, and how you can easily get it from your financial institutions, the POD process doesn’t have to be intimidating. Be ready to furnish bank statements, verification letters, or other documentation that gives your lender confidence in your financial readiness. That will lead to a smooth underwriting process and faster path to closing on your new home.