Verifications Of Deposit
Q1. I’d appreciate it if you could explain why Verifications of Deposit are required and how they work?
A1. First off, VODs are not always required; they are asked for only in a couple of instances. One, if an applicant cannot provide bank statements for the last two months or two, if they wish to receive credit for a recent deposit and there is not enough time to wait for the normal statement cycle, he or she can request a printout from the bank teller. Otherwise, the loan processor will have to send a verification letter to the bank to verify the current and average balance for the borrower's accounts.
As the processor reviews these bank statements, he or she will confirm the account ownership but will focus on two elements
1. Current balance. This amount is normally what the applicant can use for qualification.
2. Average balance. The account's average over the past two to three months will tell the processor whether the borrower has made any large deposits during the past months. Any unusual, large deposits must be explained and documented, because lenders are primarily worried those deposits may have come from unacceptable sources.
Q2. If I have furnished my loan broker with bank statements why is it necessary for me to obtain a Verification Of Deposit (V.O.D.) for a lender?
A2. There are a couple of potential reasons that might account for this request. One possible scenario is one where a borrower’s “stated” income does not jibe with their actual income. Since people usually deposit their payroll checks into their checking account an underwriter could easily deduce from the deposits on the bank statement what their actual income was. If this amount was at variance from what they “stated” it would be sufficient reason to decline the loan.
Another scenario is one involving a purchase. Lenders want to make certain that the down payment on a purchase is not from borrowed funds or the result of money laundering. Consequently, they request a V.O.D. showing that the funds are seasoned and exist because of the borrower’s thrift or sale of an asset(s) rather than their duplicity or criminal enterprise. (Seasoning usually means that the funds have been on deposit for at least 60-90 days and precludes their being borrowed as it would show up on the buyer’s credit report). In a related fashion, an exception to this could be a case where a prospective buyer is gifted the down payment from a generous relative but, this would necessitate an accompanying “Letter of Gift”, filing a form with the IRS so that the benefactor did not incur a gift tax and specifying that the gift was necessarily from a family member and not some other personage.
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