How Do Mortgage Lenders Check & Verify Bank Statements?

If you seek a mortgage for buying a new home or for refurbishing, it has to be approved by a mortgage lender for you to get your loan. One of the major factors involved in loan approval is the verification of the borrower’s financial information, but how do mortgage lenders verify bank statements for loan approval.

Banks and other financial institutions may demand “proof of verification deposit” form to be filled in and sent to the borrower’s bank for process completion. A proof of deposit may also require the borrower to provide a minimum of 2 consecutive months bank statements. During the loan approval process, if you’ve ever wondered “why is verification of bank statements for mortgages required?” then the answer is to reduce the chances of people with fake documents acquiring funds for illegal activities. 

With thousands of sophisticated technologies out there, it doesn’t take more than minutes to forge bank statements and other documents. Keeping this in mind, mortgage lenders are legally obligated to identify and authenticate bank statements. In recent years, there have been multiple instances where mortgage lenders have been scammed out of their money with fake bank statements. To save themselves such cases of financial fraud, mortgage leaders need to find ways to check and verify bank statements.

Understanding How to Verify Bank Statements?

To approve a mortgage application, a mortgage lender needs to verify a series of details. These criteria can include current income, assets, savings, and borrower’s creditworthiness.

During the process of applying for a mortgage for property purchase, the lender can and will ask the borrower for a proof of deposit on the property. The lender then is asked to verify that the funds required for home purchase have been transferred in a bank account and are now can be accessed by the borrower. 

The proof of deposit is the only way for a mortgage lender to verify if any sort of transaction has taken place before applying for the mortgage. Proof of deposit serves another purpose for the lender. Using the proof of deposit, the mortgage company can verify if the borrower has enough funds in their account to make a downpayment. If they have insufficient funds, it’s generally considered as a red flag during the loan application verification. 

Usually, a borrower pays a 20% down payment for the home. If the full cost of the home is $200,000 then the borrower will need to pay $40,00 upfront. The lender has to verify if the borrower has enough in their account to make the closing costs that are included in a new mortgage. 

The borrower has to provide the lender with the two most recent bank statements to confirm they have enough money for a downpayment. The mortgage company then reaches out to the borrower’s bank to verify if the information available on the bank statement is authentic or not. This is one of the most common ways on how to verify bank statements during mortgage approval. The digital age has made it easier for fraudsters to fabricate fake bank statements and documents which can be hard to distinguish from original statements.

Types of Documents in Mortgage For Verification

A lender has to submit a POD (proof of deposit) form to a bank to receive the confirmation of the loan applicant’s financial information. There are other ways a lender can verify if the borrower’s financial information is authentic or not. Although the document required for verification can differ from bank to bank. Here are the most common types of documents in mortgage approval:

  • Account number
  • Account type
  • Open or closed status and opening date
  • Account holder names (these are the official owners of the account)
  • Balance information. (Including current account balance, account balance over two months/periods or average bank account balance)
  • Account closing date and the balance at the closing time (if required).

A lender has the right to refuse a mortgage if the documents don’t satisfy the verification requirements.

Why Verification of Bank Statements Is Needed?

Why do mortgage lenders need bank statements? To reduce the risk of use of acquired funds by the borrower for illegal activities such as terrorist funding or money laundering. Lenders have the right to ask for a borrower’s bank statements and seek POD from the bank, some cautious lenders can ask for both of them. Lenders use POD and bank statements to ensure if the person is eligible for a mortgage.

Some lenders tend to ignore a once in a lifetime overdraft on the borrower’s account during the account history verification. Although if a consumer has numerous overdrafts then giving a loan to consumers may be considered a risk for the bank.

How DIRO Verifies Bank Account Statements?

As we mentioned above, it is getting easier and easier to fabricate fake bank account statements. With DIRO, you can verify bank statements with automated user consent and secure impersonation checks anywhere across the globe. DIRO can verify all account information including bank statements. Banks, financial institutions, and FinTechs can verify these statements using DIRO bank verification service.

DIRO’s incredible technology can verify any kind of bank documents using simple steps. All a user has to do is log in and verify bank statements online on a secure browser. It facilitates improved user experience, reduces the risk of financial crime, and instant bank verification. 

That’s not all you can use DIRO’s document verification technology for, users can access and verify any kind of bank information from any web source. One of the major ways to verify bank accounts is by processing micro-deposits, DIRO’s technology reduces the account verification time from 3-5 business days to mere seconds. 

Mortgage lenders, banks, financial institutions, and FinTechs can make use of the DIRO’s award-winning document verification technology to streamline their process of bank account and bank statement verification.

how do mortgage lenders verify bank statements