You are not limited to using only your personal savings to pay for a mortgage because there are other legitimate ways to do so. Many prospective borrowers are under the mistaken impression that there are only two ways to provide a mortgage deposit.
Continue reading to find out the various ways that a proof of deposit for a mortgage can be approved, or get in touch with Think Plutus to discuss it with a consultant.
Getting a mortgage is one of the most crucial steps in the home-buying process. Lenders normally require proof of deposit in order for you to be eligible for a mortgage because it confirms that you have the money available for the down payment. This essay will examine the idea of proof of deposit, including its importance, methods of operation, and sources that can be used to support a claim.
What is Proof of Deposit (POD)?
Proof of deposit (POD) serves two primary purposes in the financial realm. Firstly, it acts as verification that funds have been deposited into a bank account. This is particularly relevant when applying for a mortgage, where lenders need to ensure the borrower has the required down payment readily available. To provide proof of deposit, the borrower simply obtains a document from their bank confirming the deposit. This document may also be referred to as proof of funds (POF).
Secondly, proof of deposit verifies the accuracy of the amount deposited in a check or draft. This involves comparing the amount written on the check with the amount on the deposit slip. This step is crucial in the check processing workflow ensuring the correct amount is credited to the intended account.
Why Do Banks Ask for Proof of Deposit?
Lenders require proof of deposit for several reasons. Primarily, it helps them assess the borrower’s financial capability to handle the mortgage payments. By verifying the availability of funds for the down payment, lenders can gauge the borrower’s financial stability and reduce the risk of default.
Furthermore, proof of deposit helps lenders comply with anti-money laundering regulations. By tracing the source of the deposited funds, lenders can ensure that the money originates from legitimate sources and is not involved in any illegal activities.
What Qualifies as Proof of Deposit?
Various sources can qualify as proof of deposit for a mortgage Some of the most common sources include:
- Personal Savings: Accumulated funds in your personal savings account, typically evidenced by bank statements showing consistent deposits and gradual growth over time.
- Sale of Property: Proceeds from the sale of a previous property, documented by the sale agreement and bank statements reflecting the deposit of the funds.
- Equity Release from a Second Property: Funds released from the equity of a second property, usually evidenced by documentation from the lender and bank statements showing the deposit.
- Inheritance: Funds received as inheritance, documented by a certificate of inheritance and bank statements reflecting the deposit.
How to Provide Proof of Deposit
The specific documents required for proof of deposit will vary depending on the source of the funds. For instance, if using personal savings, you will typically need to provide bank statements for the past six months or more, demonstrating regular deposits and the gradual accumulation of funds. If the source is the sale of a property, you will need to provide documentation of the sale and bank statements showing the deposit of the proceeds.
Proof of deposit plays a crucial role in the mortgage application process. By providing evidence of your financial capability and the legitimate source of your down payment funds, you can increase your chances of securing a mortgage and realizing your dream of homeownership Remember to consult with your mortgage lender or a financial advisor for specific guidance on the required documentation and eligibility criteria
There are also some deposit sources that are widely accepted, though not universally:
Generally speaking, you can use the money you raise from the sale of assets like vehicles, expensive collectibles, boats, artwork, or anything else you are allowed to sell as a deposit source. You will need to show evidence of the sale.
If your deposit was gifted to you by a close family member, most lenders are happy with this. Parents, siblings, and grandparents are the most frequently accepted family members, so you will need to present a signed legal agreement from each of them outlining the terms and value of the gift.
You can learn more about gifts in our dedicated gifted deposit guide.
What mortgage deposit sources are acceptable in the UK?
While each mortgage lender has their own standards for what constitutes a suitable deposit, there are some forms that are generally accepted as reliable.
You will have the greatest selection of mortgage lenders to select from if you fund your deposit in one of these ways. This raises your chances of obtaining the greatest offers with the most affordable rates. Naturally, mortgage lenders will look at other factors as well, such as your credit history and the property’s loan to value (LTV), in addition to the deposit source.
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FAQ
Do lenders need to see proof of deposit?
Do I have to prove where my down payment came from?
Why do banks ask for proof of funds?
What is a bank verification of deposit?
Do banks need a proof of deposit form?
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.
How does a bank provide proof of deposit (pod)?
Once the funds have been deposited into a bank account, the bank will provide POD to the mortgage lender. Proof of deposit (POD) has two main applications with respect to finances. The first is verification that funds have been deposited into a bank account. This is commonly used when applying for a mortgage to buy a house.
What is proof of deposit?
Proof of deposit also occurs when the amount written on the check is compared to the amount on the deposit slip. Some lenders may have additional requirements for proof of deposit. Some may request copies of bank statements or a letter from the person who provided any gift money that has been deposited into the account.
Do you need a proof of deposit when buying a home?
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.