An examination of the frequently asked questions regarding evidence of a mortgage deposit when purchasing a property
A portion of the total amount will need to be paid as a deposit up front when you use a mortgage to purchase a home. When you do this you will also be asked for proof of deposit.
Buying a home is a significant milestone in life, and one of the most important steps is securing a mortgage. To qualify for a mortgage, you’ll need to provide a deposit, typically a percentage of the property’s value. But did you know that you also need to prove where your deposit money comes from?
Why Proof of Deposit is Required
Lenders and solicitors in the UK are required by anti-money laundering regulations to confirm the origin of mortgage deposits. This helps prevent fraud and ensures that the funds come from legitimate sources.
Acceptable Sources of Deposit Funds
Personal Savings: This is the most common and straightforward source of deposit funds. Usually, six months’ worth of bank statements demonstrating consistent contributions to your savings account are needed by lenders.
Sale of Property: If you’ve sold a property, the proceeds can be used as a deposit for your new home. You’ll need to provide proof of sale and bank statements showing the money entering your account.
Equity Release: You can release a portion of your existing property’s equity to pay for your deposit if you have a sizable amount of equity in it. For the purpose of making sure you can afford the higher mortgage payments, your lender will need to confirm your income.
Inheritance: Inherited funds are generally accepted as a deposit source. A bank statement displaying the funds transferred into your account and a document from the executor outlining the amount you were given are required.
Gifts: Gifts from close family members (parents, siblings, grandparents) are often accepted. A signed legal agreement from the gift-giver attesting to the conditions and worth of the gift is required.
Other Sources: Some lenders may consider funds from other sources, such as gambling winnings, overseas savings, or gifts from more distant relatives. However, these may come with additional requirements or restrictions.
Unacceptable Sources: Cash deposits, personal loans, and gifts from friends or employers are generally not accepted by lenders due to higher risk of fraud or money laundering.
Providing Proof of Deposit
The specific proof you need to provide will depend on the source of your deposit. For example, for personal savings, you’ll need bank statements. For inheritance, you’ll need an inheritance certificate and bank statements.
Providing proof of deposit is an essential part of the mortgage application process. By understanding the acceptable sources of funds and the required documentation, you can ensure a smooth and successful application. If you have any questions or concerns, don’t hesitate to consult a mortgage advisor or solicitor.
What is proof of deposit?
Proof of deposit (POD) is not, as it may sound, proof that you have paid a deposit. It is simply proof of where the money for your deposit came from. This is so that a deposit does not have to come from your personal funds; it can come from another source. For instance, it might result from the sale of another property, the release of equity from that property, or a parent’s gift.
In order to prevent money laundering, banks and lenders must ensure that deposits originate from legitimate and legal sources, as the source of a deposit may not always be the buyer. This is in line with anti-money laundering regulations that came into effect in 2017.
When is POD required and who needs to see it?
Whether you have funds from a single source or have saved up for them, it is wise to gather proof of deposit as soon as possible. It’s best to arrange proof as soon as possible because you’ll need to present it to several people and at various stages of the home-buying process. Not having POD ready to go will only serve to slow you down.
You may need to show POD to:
Your mortgage lender: in order for your mortgage application to be approved, you must demonstrate your ability to make a deposit and that you have the necessary funds from a reliable source.
Estate agents will want to know where the money is coming from when you want to make an offer on a property because you will be telling them how much of a deposit you can afford.
Your conveyancing solicitor: Your solicitor must be clear about the source of this money because they will be responsible for transferring your deposit to the seller upon exchange.
On the other hand, the seller’s conveyancing solicitor, who will subsequently forward the deposit to their clients, must be certain that the funds they are receiving are coming from a reliable source. This will avoid involving their clients in any illegal affairs.
Large deposits – why such a big deal?
Do you need proof of deposit when buying a home?
A look at the most common questions when it comes to proof of a mortgage deposit when buying a home. When you buy a home using a mortgage, you will need to pay some of that money up front as a deposit. When you do this you will also be asked for proof of deposit. Ready to get quotes? I need a quote for What is proof of deposit?
How do you prove a mortgage deposit?
The way you’ll need to evidence your mortgage deposit will depend on where it came from. For traditional deposit sources like personal savings, most lenders will want to see the money building up in your bank account over a period of time, usually six months or more.
Where does my deposit come from when buying a home?
The source of these funds is verified through a bank statement. You will usually be required to prove where your deposit has come from when purchasing a home with a mortgage, especially a fixed-rate mortgage. This is because banks will want to make sure that you have the funds to repay the mortgage in full and on time.
What is a proof of deposit for a mortgage?
Home » POD Guide – Proof of deposit for a mortgage To make things even more complicated, lenders also require borrowers to submit a Proof of Deposit form (a PoD for short). This little document goes a long way. It verifies that the person getting the mortgage is actually in possession of enough funds for a downpayment on the mortgage itself.