Income and Asset Verification: Best Practices and Key Documents

When people borrow money, they usually plan to pay it back. But sometimes, unexpected life events make it hard or even impossible to repay. So, banks and lending companies need to make sure they can get their money back and follow anti-money laundering (AML) and know-your-customer (KYC) rules.

To do this, they check income to make sure borrowers can pay back the loans. They also check assets to see the value and ownership of things borrowers can use as collateral or to pay off debts if they can't repay.

What is Verification of Income?

Income verification means checking and proving how much money someone makes from different places. It's done to see if someone is financially stable and eligible for loans or rental agreements. This involves gathering and checking documents like pay stubs, tax returns, and bank statements to make sure the income is real and reliable. It's important when applying for loans, renting property, or getting government help.

What is Assets Verification?

Asset verification means checking and recording the value and ownership of someone's or a business's possessions or investments. Financial institutions and lenders do this to see how financially stable someone is. To do this, people may need to provide documents like property deeds, bank statements, or appraisals. Asset verification is important for getting loans, renting homes, and meeting regulatory requirements.

What is an Asset Document?

An asset document or asset statement is a formal paper or digital proof that shows what someone owns financially. These papers help confirm who owns what, ranging from real estate properties to investment portfolios. They facilitate financial transactions, substantiating ownership claims and ensuring regulatory compliance.

In other words, an asset statement is a detailed document that lists your financial assets, such as bank accounts, investments, and property holdings. It provides a snapshot of your financial health by showing the value of your assets at a given point in time.

What is an Asset Statement?

It’s basically a document that gives a clear picture of what someone owns financially. Think of it like a list or summary that shows everything valuable, bank accounts, investments, properties, even cash, at a certain time.

When you need to know someone’s financial health, this is where you start. It’s like pressing pause and seeing the value of all their assets right then and there.

For example, in the case of a mortgage application, an asset statement focuses on the assets that matter for that process. It helps lenders see how much financial backing someone has.

A typical asset statement includes:

• Who the statement is for

• The date it’s prepared

• A breakdown of cash, investments, real estate, and personal valuables

Common Types of Asset Documents

As discussed, lenders require asset statements or asset documents to verify that you have the financial resources necessary to cover down payments, closing costs, and other mortgage-related expenses. This process is known as assets verification or asset documentation.

The following are examples of asset statements:

1. Property Deeds

2. Vehicle Titles

3. Bank Statements

4. Investment Account Statements

5. Appraisals Reports

6. Insurance Policies

7. Trust Documents

How Does Verification of Income Relate to Asset Verification?

Verification of income and asset verification are two processes that work together to understand the full picture of someone's financial situation. The first checks how much money someone earns on a regular basis not a one-time thing, while the latter looks at what they own and how much it's worth.

Both verification processes are important for getting approved for loans and making sure someone can pay back what they owe. For example, when someone applies for a loan, their income shows if they can afford the payments, while their assets can be used as a backup in case they can't pay.

What Types of Assets are Reported on Mortgage Application?

Proper documentation of income and assets mortgage application details is crucial for lenders to accurately assess your financial stability and approve your loan.

When filling out a mortgage application, it's important for applicants to report various types of assets that can support their financial profile and increase their chances of approval. The types of assets that should typically be reported on a mortgage application include:

• Cash and Savings: This includes money in checking accounts, savings accounts, certificates of deposit (CDs), and other liquid assets that can be easily accessed.

• Real Estate Holdings: Applicants provide information about any other properties they own, including rental properties, vacation homes, or land.

• Vehicles: While not always required, some lenders may ask for information about the applicant's vehicles, including their make, model, and estimated value.

• Other Assets: Any other valuable assets the applicant owns, such as personal property, collectibles, gold, jewelry, or valuable artwork.

• Investment Accounts: Report investment accounts such as brokerage accounts, stocks, bonds, mutual funds, retirement accounts (e.g., 401(k), IRA), and any other securities or investment holdings.

Why Should You Ask for Income and Asset Verification from Customers?

During the mortgage approval process, lenders require proof of assets to ensure you have sufficient financial resources to support the loan and meet all associated costs. Requesting income and asset verification from customers serves many other purposes, such as:

1. Risk Reduction: Verification helps you evaluate the financial stability and ability of customers to fulfill their financial commitments. In other words, income and asset verification reduce the risk of defaults or non-payment.

2. Regulatory Compliance: Income and asset verification enable you to comply with anti-money laundering (AML) and Know Your Customer (KYC) regulations.

3. Fraud Prevention: When you request these documents and proofs, you basically deter fraud because they help you protect against identity thefts and false claims or application fraud.

4. Loan Approval Process: These documents also help you know if someone qualifies for a loan and what terms there should be in the agreement.

Read more: What is Document Verification & How Does it Work?

5. Customer Trust: Verifying income and assets improves reputation and strengthens customer-bank relationships.

10 Best Practices for Effective Income and Asset Verification

Ensuring effective verification involves thorough procedures and attention to detail to guarantee precision, adherence to regulations, and dependability. Here are ten best practices for effective verification:

1. Establish Clear Procedures

Create straightforward steps for verifying income and assets, outlining what documents are needed, how to verify, and what to do if there are any issues.

2. Utilize Multiple Verification Sources

Check income and assets using different sources like pay stubs, bank statements, and third-party services to make sure everything matches up.

3. Verify Source Authenticity

Confirm that the documents and information provided are real by talking directly to employers or banks to make sure everything checks out.

4. Employ Technology Solutions

Use technology tools and software like FOCAL’s Income Verification to make the verification process faster and more accurate.

5. Ensure Compliance with Regulations

Adhere to legal and regulatory requirements, such as anti-money laundering (AML), Know Your Customers (KYC), and privacy laws. Stay updated on regulatory changes and adjust verification processes accordingly.

6. Conduct a Risk-Based Approach

Decide how much checking to do based on how risky the transaction or customer seems, focusing more on high-risk cases to make sure everything is legit.

7. Document Verification Process

Keep records of everything you do when verifying income and assets, including what documents you used, what you found, and what you did next.

Read more: The 10 Best Identity Verification Software Solutions for 2024

8. Regular Training and Education

Teach your staff about how to do verification properly and make sure they know the rules and how to spot any problems.

9. Monitor and Review Procedures

Keep an eye on how well your verification process works, making changes as needed to keep up with new trends or fix any issues.

10. Maintain Confidentiality and Data Security

Keep customer information safe and ensure only the right people can see it by using strong security measures and following privacy laws.

Role of Technology in Asset Verification Processes

FOCAL Income Verification offers significant support in both income and asset verification processes through its innovative features:

1. Variable Incomes: By identifying various income sources, including irregular earnings like freelancing, FOCAL Income Verification employs advanced algorithms to analyze historical data and industry-specific trends. This ensures a more precise understanding of an individual's earning capacity, crucial for lenders, rental agencies, and entities requiring reliable income verification for individuals with unconventional earnings.

2. Salary Verification: FOCAL Income Verification enables quick and efficient verification of direct income from employers. This is achieved through direct connections with payroll systems or utilizing open banking technology. Machine learning algorithms authenticate documents and data, facilitating real-time verification of salary information.

3. Enhanced Customer Experience: The system simplifies and automates income verification, leading to smoother, easier, and more accurate affordability assessments for customers.

4. Streamline Growth: By improving credit decision processes, FOCAL Income Verification benefits both businesses and customers, offering faster and more secure application processes, which can facilitate business growth.

5. Assessment Accuracy: Through the integration of open banking and artificial intelligence (AI) for credit checks using alternative data, the system enhances loan assessments for individuals with self-employment income or thin credit files, resulting in more accurate evaluations.

Read more: Guard Your Business Against Loan Fraud: Types, Impact, and Prevention

6. Financial Inclusion: FOCAL Income Verification contributes to financial inclusion by leveraging diverse financial data for assessments. This increases loan eligibility and introduces new market segments, promoting broader access to financial services.

7. Fraudulent Incomes: The system helps detect unusual income patterns and verify customers' real income, thereby reducing the risk of approving fraudulent loans and avoiding penalties associated with fraudulent activities.

Conclusion

In conclusion, income and asset verification help lenders make informed decisions and build trust with borrowers. Accurate asset documentation helps lenders assess your ability to repay the loan and manage your financial obligations.