A proof of funds letter is a document from your bank or financial institution that verifies you have the liquid assets to complete a real estate transaction. Sellers, real estate agents, and even lenders often request a proof of funds letter before accepting your offer to make sure that you’re a serious buyer or can cover the required down payment.
When you’re competing for a home, a proof of funds (POF) transfer letter can mean the difference between having your offer accepted or declined. It shows that you have the financial capacity to follow through on your offer. Whether you need to verify that you can afford a down payment or want to make a cash offer, a POF letter is one of the most important documents you’ll need.
What is a proof of funds letter in real estate?
A proof of funds letter in real estate is an official document issued by banks, credit unions, or other financial institutions, which provides evidence that you have enough liquid assets to complete a property purchase, including paying for the down payment and closing costs.
A POF letter is used to show sellers, real estate agents, or lenders that you have enough money to cover the full purchase of a home. Unlike informal documents (such as screenshots of online banking balances), a proof of funds letter is typically on official letterhead, signed by a bank representative, and sometimes notarized. This provides assurance to sellers and agents that the funds are verifiable and accessible.
It’s also important to note that a proof of funds letter from a bank is different from a proof of deposit in real estate. A POF letter gives sellers and lenders assurance that you can afford the entire cash purchase price or have enough money to cover the down payment and closing costs. On the other hand, a proof of deposit verifies that a specific amount of money was recently deposited into your account.
Proof of funds vs. preapproval
While both documents prove you’re a serious buyer, they serve different purposes in a real estate transaction. Here’s a quick comparison of proof of funds vs. preapproval letter.
| Proof of funds letter | Preapproval letter | |
|---|---|---|
| Who issues it? | Banks, credit unions, and other financial institutions | Mortgage lenders |
| What it proves | That you have enough liquid assets immediately available to cover the purchase price, down payment, or closing costs | That a lender has reviewed your credit, income, and financial profile, and you qualify for a home loan up to a certain amount |
| When needed | Often required for cash offers | Applying for a mortgage |
A proof of funds letter shows the money you already have, while a preapproval is the amount you may be able to borrow. You only need a proof of funds letter for cash offers because cash transactions don’t involve a lender. However, sellers, agents, and lenders may require both documents because together they show you’re financially ready to close.
When you need a proof of funds letter
A proof of funds letter isn’t always required by law, but sellers, agents, and lenders often want assurance that you can follow through on your offer. You need a proof of funds transfer letter in these common scenarios:
- Cash offers: If you’re buying a home outright, the seller will almost always require proof of funds before accepting your offer. Without it, there’s no guarantee that you actually have enough money to close on the property. Sellers want to avoid delisting the property from the market and later finding out you don’t have the funds.
- Down payment verification: Even if you have a mortgage preapproval, some sellers and agents require you to provide proof that you can cover the required down payment and closing costs.
- Mortgage approval process: Lenders often request a proof of funds letter when finalizing your mortgage approval. This helps them confirm that you’re able to cover your obligations, such as closing costs.
- Short sales or distressed sales: Banks and other financial institutions are very strict when it comes to short sales. That’s why they often require proof of funds as part of the approval process.
- Competitive offers: In a hot housing market, presenting a proof of funds letter can give you a competitive edge. Sellers are more likely to choose a buyer who demonstrates financial readiness over one who only provides a verbal assurance.
Is evidence of finances required to make an offer? Not in every situation, but most sellers and real estate agents will ask for it, especially for cash offers and high-value properties.
What should a proof of funds letter include?
A valid proof of funds letter from the bank should contain the following:
- Date of issuance
- Bank or financial institution’s name and contact information with official letterhead.
- Account holder’s name
- Account type
- Total funds available
- Bank representative’s signature, title, and official seal
Here’s a standard proof of funds letter template:
[Letterhead]
[Date]
[Name of bank]
[Address]
[Phone number and or email address]
Dear [Name],
This letter is to confirm that [Name of person or company] has maintained accounts with our institution since [Year] and remains in good standing.
As of the date of this letter, the total balance of cash deposits held by [Name of person or company] with our bank is USD $______. For verification, we have included financial statements outlining these balances.
Should you need any additional details or clarification, please feel free to reach out to us at [Email] or [Phone number].
Sincerely,
[Signature]
[Full Name of Bank Representative]
[Title]
What types of funds qualify?
Not all assets count as proof of funds. Here are the types of funds that qualify and those that don’t:
| Qualifying (liquid) funds | Non-qualifying (illiquid) funds |
|---|---|
|
|
⭐Can you show cash for proof of funds? No, you cannot present physical cash as proof. You must deposit the amount in a bank account, and the financial institution should verify it through an official letter.
How to get a proof of funds letter
Getting a proof of funds letter is usually a quick and straightforward process, but a little preparation can make it even smoother. Here’s how to do it.
1. Consolidate funds into one account
If you have money spread across multiple accounts, transfer the needed amount into one account before requesting a POF letter. You may want to consolidate your funds at least two months before getting pre-approved for a mortgage or making offers.
2. Contact your bank or credit union
Reach out to your bank via a phone call, email, or visit the local branch in person and ask for a proof of funds letter for a real estate transaction so they understand exactly what you need.
3. Provide details
The bank will likely ask you for:
- The exact amount you need to verify
- The account number(s) involved
- The purpose of the letter
- Whom the letter should be addressed to
4. Receive letter
Most financial institutions get the document ready in one business day. The letter will usually come with an official bank letterhead and be signed by an authorized representative.
5. Share only with trusted parties
Once you receive the letter, share it with trusted parties, such as your real estate agent, lender, or the seller’s agent. Like any other financial document, keep your POF letter secure, as it contains sensitive information.
⭐How fast can you get a proof of funds letter? Most banks provide a POF letter within one business day.
Alternatives to a proof of funds letter
Most real estate transactions require a formal proof of funds letter from your financial institution, but you can use other documents, especially if your bank doesn’t issue it or there are delays. In these cases, these alternatives to a proof of funds transfer letter may work:
- Bank statement: Recent statements from your checking, savings, or money market accounts can demonstrate that you have the necessary funds.
- Investment account statements: If your funds are tied up in investments like stocks, bonds, or mutual funds, a brokerage account statement may help prove you have enough assets. Just keep in mind that sellers prefer liquid assets, so you may need to sell investments first.
- Notarized affidavits: In some cases, a notary can certify a signed affidavit that you have the required funds. This is less common but may work in certain private sales or less formal transactions.
⚠️ Keep in mind that not all sellers or agents accept these alternatives in place of a formal proof of funds letter.
The bottom line
A proof of funds letter is an official document that confirms that you have accessible funds needed to complete a property purchase. It shows sellers, lenders, and agents that you’re a serious buyer. You need a POF letter in cash deals, when you need to verify a down payment, and sometimes in certain loan approvals.
The good news is that getting a proof of funds letter is usually quick and straightforward. Most banks and credit unions can issue one upon request, often within the same day, and they typically provide it at little or no cost.
Need help making a strong offer? |
FAQ
You can get a proof of funds letter from your bank, credit union, or financial institution. Request the document, and they’ll prepare an official letter with a letterhead.
Most banks issue a proof of funds letter within one business day of your request. If you need one urgently, some financial institutions can provide a POF letter instantly but often charge a fee for expedited service.
A standard proof of funds letter is a signed document with the institution's official letterhead. It usually includes your name, account type, current account balance, and a confirmation that the funds are available for immediate use.
If part of your funds is coming from a gift from a family member, that donor may need to provide a signed letter along with supporting bank statements to show the money is legitimately available.
Yes, you can use retirement or investment accounts as proof of funds because you can quickly convert these to cash. However, withdrawing from retirement accounts, including 401(k)s and IRAs, may be more complicated.
No, most financial institutions issue them for free. In cases where you need the document urgently, you may need to pay a small fee for the expedited service.