Understanding the Essentials: Verification of Deposit for Mortgage Approval
A verification of deposit (VOD) is a critical document that enables a mortgage lender to validate the borrower’s bank balances through their financial institution. Upon a lender’s request, the bank provides not just the current data but also an average of the borrower’s bank balances over a two-month period.
How It Works
Here’s a step-by-step look at the VOD process:
- Authorization: The borrower must sign a form allowing their banking institution to release their financial information to the lender.
- Bank Inquiry: Each bank listed on the mortgage application receives a request for verification of deposit.
- Response: The banking institution furnishes the lender with details of the current account balance and previous two months’ average balances.
Simplified Process for Multiple Institutions
In scenarios where multiple banking institutions are involved, the lender can issue an umbrella authorization form for the borrower to sign. This form permits the lender to request necessary financial information from all relevant banks.
First vs. Second Mortgages
- First Mortgage: For initial mortgage applications, lenders must send requests for verification directly to each bank. The banks, in turn, send the completed forms back directly to the lender without borrower intervention.
- Second Mortgage: For second mortgage applications, borrowers themselves can initiate the VOD requests, but banks are still required to send the completed documents directly to the lender.
Understanding the role of VOD in the mortgage application process can smoothen the path to securing a desired loan with minimal hitches. Research your banking options and be prepared to quickly sign authorization forms to facilitate speedy financial verifications.
Related Terms: Proof of Income, Mortgage Underwriting, Loan Approval Process, Financial Statements
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### What is the main purpose of a Verification of Deposit in a mortgage application?
- [x] To provide proof from the borrower's banking institution of their balances
- [ ] To verify the borrower's employment history
- [ ] To check the borrower's tax filings
- [ ] To assess the property's market value
> **Explanation:** The main purpose of a Verification of Deposit (VOD) is to provide proof to the mortgage lender of the borrower's bank balances. This helps the lender assess the financial standing and reliability of the borrower.
### Who is responsible for signing the authorization form for a Verification of Deposit?
- [ ] The borrower's bank
- [ ] The lender
- [x] The borrower
- [ ] The real estate agent
> **Explanation:** The borrower is required to sign a form authorizing their banking institution to provide information to the lender for verification of deposit.
### How much banking data is typically provided to the lender through a Verification of Deposit?
- [ ] One month of bank data
- [ ] Six months of bank data
- [x] Two months of bank data
- [ ] Twelve months of bank data
> **Explanation:** Typically, a Verification of Deposit includes current data as well as two months' worth of the borrower's average bank balances.
### For a second mortgage application, who is permitted to submit requests for verification of deposit to the banks?
- [x] The borrower
- [ ] The lender
- [ ] The real estate agent
- [ ] The loan officer
> **Explanation:** For second mortgage applications, borrowers themselves are allowed to submit requests for verification of deposits to their banks. However, the completed information must still be sent directly to the lender independently of the borrower.
### What is the protocol for submitting and receiving verification of deposit information for a first mortgage application?
- [ ] The lender submits requests through the borrower
- [ ] The borrower submits requests and receives the information
- [x] The lender submits requests directly to the banks, which then send information back directly to the lender
- [ ] The real estate agent manages the entire process
> **Explanation:** For first mortgage applications, lenders must transmit requests for verification of deposit directly to each bank. Each bank then sends the completed information back to the lender without the involvement of the borrower.
### What document does a bank provide to fulfill a verification of deposit inquiry?
- [ ] A credit score report
- [ ] An income statement
- [x] A document showing the borrower's current account balance and average balances over the past two months
- [ ] A property appraisal report
> **Explanation:** To fulfill a verification of deposit inquiry, the bank provides a document that shows the borrower’s current account balance and average balances over the past two months.
### What is the advantage of an umbrella authorization form in a verification of deposit process?
- [ ] It simplifies the borrower’s tax filing
- [ ] It provides the lender with real estate market trends
- [x] It allows the lender to make all necessary requests for information from multiple banking institutions with one authorization from the borrower
- [ ] It gives higher credit scores to the borrower
> **Explanation:** The umbrella authorization form allows the lender to make all necessary requests for information from multiple banking institutions with just one authorization from the borrower, streamlining the process.
### Who receives the fulfilled verification of deposit in the case of a first mortgage?
- [ ] The borrower
- [ ] The real estate agent
- [x] The lender
- [ ] The government tax office
> **Explanation:** In the case of a first mortgage, the completed verification of deposit information is sent directly to the lender by the bank.
