Lenders often approve mortgage loans with conditions, meaning you have to meet some additional requirements before the loan can close. When the lender asks for proof of deposit before closing, he wants to see paperwork that shows a certain amount of funds deposited into a specific bank account.
When It's Necessary
Lenders will ask for a proof of deposit any time you deposit money into an account to cover your required financial reserves, which is the amount of extra funds you must have available at closing, or your closing costs. For example, if you are using gift money from a family member, profit from the sale of your current home or the contents of a retirement account to pay your down payment, the lender will ask for a proof of deposit before closing.
The main purpose of a proof of deposit is to reassure the lender that you have enough money in your account to close the loan. Lenders may also ask for a proof of a deposit so they can trace the source of the money you use to pay for your mortgage. For example, lenders allow you to include gifts in your available funds only if they come from a relative, spouse or domestic partner. To make sure your gift meets these requirements, the lender analyzes the proof of deposit.
To verify deposits into your bank account, the lender will typically ask for bank statements covering the last two months of transactions. The statement must include the starting and ending balance, information about every deposit and withdrawal, the account number and the name of the account owner. If any deposit on the statement is larger than 25 percent of your gross monthly income, the lender will request a written explanation of the deposit. He may also ask for additional documentation, such as a canceled check or a letter from the person who provided the money.
If you can't give the lender enough documentation to verify the source of funds in your bank account, you won't be able to use the funds to pay closing costs or as part of your financial reserves. Although lenders will usually ask you for copies of your bank statements, they can also contact your bank directly and ask for the paperwork using a Verification of Deposit request form.