Alternate name: Verification of deposit
With a proof of deposit, a mortgage lender can see that you have the money you need to make mortgage payments or cover down payment and closing costs for buying a house. It shows whether the money in your account came from a legitimate source, which helps the lender determine if you can afford mortgage payments. In contrast, if the money is from, say, a gift, the bank will not expect you to receive those deposits regularly. Although a lender may accept a one-time deposit as funds for a down payment or closing costs, it will not use that deposit to calculate how much in mortgage payments you can afford. Outside the mortgage industry, a proof of deposit may also confirm that the amount of a check aligns with the amount in the account that will be debited, or, in other words, that there’s enough money to cover the check.
How a Proof of Deposit Works
Lenders may ask you to provide proof of deposit in several cases. For example, you may have to provide several months’ worth of bank statements, pay stubs, or W-2s to show regular deposits from your employer. Here are some other sources of money you may have to prove:
Personal savings: To use your savings for proof of deposit, you’ll likely need several months of bank statements. These statements should show the money being added to your account. Lenders prefer to see money that is “seasoned,” meaning it has been in your account for a longer period of time, so is less likely to be a loan. You may have to write a letter explaining the source of the funds. Property sale: If you’ve sold a property and plan to use the funds for a large purchase like a house, you’ll need to show your bank account that contains them. Documents that prove you owned the property may also be required. Equity release: If you use the same lender to buy a second home using equity from your first one, you may not need proof of deposit. They might, however, ask you to show that you can pay the mortgage on both properties. Inheritance: To use the money you received in a will, you’ll likely need to provide documents that state how much you received as well as a bank statement that shows the money in your accounts. Gifts: If you’re using gift money, you’ll have to show a legal agreement that explains the money was a gift and the person who gifted it does not expect to be paid back and that they don’t want a portion of the property.
Lenders may also accept funds from savings bonds, investments, 401(k)s, and IRAs as well as other sources to be used toward a deposit.
A Proof of Deposit vs. a Proof of Funds
While a proof of deposit and a proof of funds sound the same, there is a noteworthy difference between the two terms. A proof of funds verifies that you have the funds to cover a certain transaction. It may be a document such as a bank statement or a custody statement. With a proof of funds document, the lender will have proof that you, the buyer, have the money you need to complete the transaction. While proof of funds simply shows that there is enough money to make a purchase, a proof of deposit shows whether your funds came from a legitimate source.
