Borrowers seeking a mortgage to purchase or refinance a home must be approved by a mortgage lender to get their loan. For banks to verify the borrower’s financial information, they may need a proof or proof of deposit (POD) form to be filled out and sent to the borrower’s bank. As proof of deposit, the borrower may need to show the mortgage lender at least two months of bank statements.
When you apply for a loan, the lender will likely want to review your bank account statements This allows them to verify your income, assess your spending habits, and determine if you can truly afford the loan payments. But how closely do they look? And what exactly are they looking for? Here’s what you need to know about bank statement checks by loan companies
Why Loan Companies Review Bank Statements
There are a few key reasons lenders want to look at your bank account activity
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Check your income—Lenders can be sure of your income sources and amounts by looking at your deposits. This helps them figure out if you make enough money to pay back the loan.
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Check spending habits – Loan companies look at your recurring expenses to get a sense of your financial habits. Do you pay bills on time? Are you overspending each month? This insight helps assess if you can manage additional debt.
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Confirm account stability – Frequent overdrafts or bounced checks may indicate you’re living beyond your means. Lenders want to see a relatively stable account history.
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Assess risk: In the end, lenders look at your bank statements to decide if giving you money is a good risk. Your account activity shapes their view of your financial health.
How Far Back Do Lenders Look?
Most lenders request bank statements covering the last 2-3 months Some may ask for up to 12 months of statements if you’re self-employed or have variable income sources
For a mortgage, you’ll likely provide the most recent 2 months of statements. Mortgage lenders typically don’t re-check right before closing unless something major changes.
What Information Do Lenders Review?
When reviewing your bank statements, lenders dig into the details. Here are some key pieces of information lenders look for:
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Deposits of income—Lenders want to see regular deposits of income from jobs and other sources. The amounts must align with your reported income.
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Account transfers – Large or frequent transfers between accounts may raise questions. You may need to explain where funds originated.
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Cash reserves – Many lenders want to see savings leftover each month. This cushion helps if your income drops unexpectedly.
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Spending activity – Lenders review recurring expenses to see how you manage monthly bills. They want to see you’re not living beyond your means.
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Debt payments – Existing debts, like credit cards and auto loans, appear as withdrawals or electronic payments. Too many can signal excessive debt load.
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Overdrafts – Multiple overdraft fees indicate you may struggle to manage monthly expenses. Overdrafts on a mortgage application could require further review.
Red Flags Lenders Watch For
While reviewing your bank activity, lenders watch for patterns that could signify risk. Here are some red flags that may cause concern:
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Large, unexplained deposits – If you suddenly have extra funds without a paper trail, lenders may worry it’s borrowed and must be repaid.
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Inconsistent income – Irregular income deposits from month to month may make lenders hesitant to approve a loan.
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Undisclosed debt – Any payments to creditors not listed on your application could mean you hid debts. This raises questions.
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Overspending – If your expenses exceed your income regularly, lenders may determine you can’t afford more debt.
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Risky behaviors – Gambling, frequent ATM withdrawals, or using payday loans all demonstrate financial risk.
Tips for Bank Statement Prep
If you’re applying for a loan soon, it helps to tidy up your bank account activity. Here are some tips:
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Avoid large, unexplainable deposits. Wait 60 days before applying to allow funds to “season.”
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Build up cash reserves by saving each month. This shows lenders you can handle emergencies.
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Pay down balances on credit cards and other debts. This lowers your debt-to-income ratio.
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Hold off on major purchases that could impact your account balance and activity.
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Clear up any overdrafts or non-sufficient fund fees prior to applying.
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Consolidate accounts used for loan qualification to simplify statement review.
Alternatives to Sharing Statements
Some lenders may accept alternatives in lieu of bank statements:
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Verification of deposit (VOD) – This form completed by your bank confirms your account balance and details. But lenders can still request statements.
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Bank statements summaries – Online banking apps like Mint can aggregate account data. Summaries likely won’t replace full statement review.
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Tax returns – Business tax returns can demonstrate self-employment income for loans like SBA financing. But lenders may still want bank statements.
Understanding How Lenders Verify Bank Statements
Banks and mortgage lenders underwrite loans based on various criteria, including income, assets, savings, and a borrowers creditworthiness. When buying a home, the mortgage lender may ask the borrower for proof of deposit. The lender must verify that the funds required for the home purchase are in a bank account and accessible to the lender. This is the proof of deposit (POD).
For example, in a typical mortgage, a borrower might put 20% down toward purchasing a home. If its a $300,000 home, the borrower would have to put down $60,000 upfront. The mortgage lender would use a proof of deposit to verify that the borrower actually has $60,000 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. A mortgage calculator can show you the impact of different rates on your monthly payment.
The borrower typically provides the bank or mortgage company with two of the most recent bank statements. Then, the company will contact the borrowers bank to verify the information.
How Do Mortgage Lenders Verify Bank Statements?
Some lenders ask you to submit bank statements that they will go over manually or electronically, while other lenders might call your bank directly and ask for verification.
What Your Loan Officer Checks On Your Bank Statements
FAQ
Can a loan companies check your bank account?
Mortgage lenders are required by law to check bank statements to make sure the money isn’t being used for illegal things like terrorism or money laundering.
Do loan companies need access to your bank account?
Yes, loan companies typically need access to your bank account statements or, in some cases, direct verification of your account information to assess your loan application. This is done to evaluate your financial stability and ability to repay the loan.
Can companies see your bank account balance?
Your employer can see your credit history but not your bank accounts on their employer credit check. If there are special circumstances in which you want the employer to have access to your information, you will have to give permission in writing for them to have access. Navigate your finances with confidence.
Do lenders look at all bank accounts?
Do I have to tell the mortgage lender about all of my bank accounts? Yes, you usually have to tell the mortgage lender about all of your bank accounts that have money in them that you plan to use to help you qualify for the mortgage.