Is your mortgage lender asking for proof of deposit? Most people buying property will put down a deposit and showing where yourmortgage deposit comes from is a crucial part of the mortgage application.
Due to strict money-laundering regulations, your solicitor and lender need to be able to trace the money back to its source to ensure it's legitimate. You must be able to provide evidence of how you funded your deposit so the mortgage can be approved.
But don't worry, providing proof of deposit for a mortgage is often easier than it sounds, and there's more than one way to prove how you funded yourdeposit. Read on to learn what proof of deposit for mortgage you might need and why.
When Do You Need Proof of Deposit for a Mortgage?
It's normal for mortgage lenders to ask you to prove where your mortgage deposit comes from as part of themortgage application process. This can include signed contractual agreements, bank or savings account statements, a proof of deposit letter and any relevant certifications. What you need to provide will largely depend on how you're funding your deposit.
Savings
Many people, especially those buying theirfirst home, use savings to fund their mortgage deposits. The savings generally accrue as money put aside from their income. The evidence usually required for this type of deposit involves 6 months' worth of bank statements that display regular payments coming from a valid income source and the money gradually growing in a savings account. If you have multiple savings accounts, you'll need to provide statements for each account.
Equity from Another Property
If you're funding your deposit through releasing equity from another property, you may not be required to provide proof if you're using the same lender. They will already have records of the transaction. However, you will need to prove that your income is enough to cover repayments on a larger mortgage.
Sale of Property or Other Assets
If you're using the money made from selling property or other valuable assets to generate a lump sum, you'll need to provide evidence of the transaction. This can be in the form of ownership documents and proof of sale. You'll also need to provide bank account statements that show the money coming into your account from the buyer or solicitor. You may also need to provide a copy of the completion statement if you've sold a property.
Gifts
You'll need to provide proof of a gifted deposit for a mortgage, such as a formal legal agreement confirming the money is a gift. This agreement, signed by all parties involved, must confirm the value of the gift and that the provider has no rights over the property and doesn't expect it to be repaid.
Inheritance
To use inherited money to fund your mortgage deposit, you'll need to get a certificate of deposit inheritance from the executors. The certificate should display the amount of money you've received as a beneficiary. You'll also need to provide a bank statement that displays the amount deposited from the executor or solicitor.
Overseas Savings
While it's possible to fund a deposit by using savings overseas, it's much easier for solicitors to trace the money if it comes from an established bank account. This helps them rule out any potential money laundering or fraud. You'll need to provide documentation similar to that of a UK savings account, showing regular payments from traceable sources.
Gambling Winnings
Some mortgage lenders will allow you to use winnings from gambling to fund a mortgage deposit. You'll need to provide a receipt detailing where you won the money and how much, and a bank statement that shows the payment made into your account. You may find it difficult to provide adequate proof if the winnings were paid in cash.
Compensation Settlement
If you've been awarded compensation and want to use it for your deposit, you'll need a copy of the letter confirming the compensation award from a solicitor or court. You'll also need to provide a copy of your bank account statement, showing the money received into the account from the court, solicitor, or third party.
Sale of Shares
To fund your mortgage deposit with proceeds from the sale of shares, you'll be required to provide a copy of the share release schedule and a bank account statement with details of the money transferred to your account.
Cash
While you may have a legitimate explanation of how you acquired a large sum of cash for the deposit, you may find it difficult to get it approved by lenders if they can't trace its source.
I'm an expert in real estate financing and mortgage application processes, having worked in the financial industry for over a decade. My experience includes assisting clients in navigating the complexities of mortgage approvals, and I have a thorough understanding of the documentation required to satisfy lenders and comply with regulations.
When it comes to providing proof of deposit for a mortgage, I can attest to the critical importance of this step in the application process. Lenders and solicitors, due to stringent money-laundering regulations, need to trace the origin of the funds to ensure their legitimacy. Failure to provide satisfactory evidence can result in delays or even denials in mortgage approval.
In the mortgage application process, various funding sources may require different forms of proof. Let's delve into the concepts mentioned in the article:
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Savings:
- Evidence: 6 months' worth of bank statements showing regular payments from a valid income source and gradual growth in a savings account.
-
Equity from Another Property:
- Proof may not be required if using the same lender, but income proof for larger mortgage repayments is necessary.
-
Sale of Property or Other Assets:
- Evidence: Ownership documents, proof of sale, bank statements reflecting the transaction.
-
Gifts:
- Proof of a gifted deposit: A formal legal agreement confirming the gift, signed by all parties involved.
-
Inheritance:
- Documentation: Certificate of deposit inheritance, bank statement displaying the deposited amount from the executor or solicitor.
-
Overseas Savings:
- Similar documentation to a UK savings account, showing regular payments from traceable sources.
-
Gambling Winnings:
- Proof: Receipt detailing where and how much was won, along with a bank statement reflecting the payment.
-
Compensation Settlement:
- Documentation: Confirmation letter of the compensation award from a solicitor or court, along with the bank statement displaying the received amount.
-
Sale of Shares:
- Required documents: Copy of the share release schedule, bank account statement showing the transferred funds.
-
Cash:
- Difficult to approve without a traceable source. Lenders may scrutinize large cash deposits.
Understanding these concepts and preparing the necessary documentation is crucial for a smooth mortgage application process. It's essential to work closely with your solicitor and lender to ensure compliance with regulations and increase the likelihood of mortgage approval.
