A realtor asking for proof of funds (POF) reassures them and the home seller that you’re a serious buyer capable of purchasing the home you want. Realtors often encourage sellers to ask for proof of funds along with a pre-approval letter from their lender to cover their bases. A proof of funds letter supports your status as a qualified home purchaser, which means nobody will be wasting their time. A realtor may accept a POF letter instead of a mortgage pre-approval, or they may want both.
What is a proof of funds letter in real estate?
A proof of funds letter in real estate certifies that a borrower or cash buyer has the necessary funds available to support an offer and complete the real estate purchase. The proof of funds letter should include documentation for the entire sales price for a cash buyer. In the case of a borrower, the proof of funds letter must show that the buyer has the money they need to make the down payment and cover closing costs. They may also need to provide a pre-approval letter from their lender. Sellers, lenders, and real estate agents may ask for a proof of funds letter.
Proof of funds vs. pre-approval: what’s the difference?
Proof of funds and pre-approval letters are separate documents that establish you as a qualified buyer when presented together. Unless it’s a cash transaction, a real estate purchase requires lender funds for the bulk of the purchase price and personal funds for your down payment and closing costs.
Mortgage pre-approval shows you’ve been vetted by a lender for a home loan and met their criteria. Therefore, it’s highly likely that you will have the lender funds you need to buy the house. By contrast, a proof of funds letter confirms that you have the remaining money in personal cash or liquid assets required to successfully purchase the home. Together, they demonstrate that you’re a serious buyer eligible to make a genuine offer and most likely complete the sale.
When you might need a proof of funds letter to buy a home
A proof of funds letter is often intended to reassure the home seller and listing agent that the prospective buyer has the money to purchase the property. Here are some common situations where a proof of funds letter may be necessary.
The seller needs proof of funds to follow through on your cash offer before they accept it. Knowing that you really have the money you say you do protects them from a failed sale. Once they remove the active listing, other interested buyers will move on. Then, if the sale falls through due to inadequate funds, the seller must start over, which extends the process.
Cash down payment
Even with a home loan pre-approval letter, the seller may want further reassurance. They need to know you can afford to bring the necessary down payment funds to closing, and a proof of funds letter will reassure them of that.
Your lender also wants to know that you can fulfill your part of the contract. So, your lender might also ask for proof of funds to assure them that you can complete the home purchase agreement at settlement.
Banks are very strict about approving a short sale. Providing proof of funds is often part of the lengthy buyer offer approval process.
What should a proof of funds letter include?
A proof of funds letter should include the following information:
- Account holder’s name
- Official bank statement, which may be printed at a branch or accessed online
- Funds remaining in a checking or savings account
- Total balance of your accounts
- Date(s) the money was deposited in your accounts
- Name and location of the bank
- A signature from a bank employee or notary public (sometimes optional)
What types of funds will qualify for a proof of funds letter?
Typically only liquid assets will qualify for a proof of funds letter. Stocks may or may not qualify since market conditions change stock value daily. You may have to sell your stocks before including those assets in a proof of funds letter.
|Qualifying funds for POF letter||Non-qualifying funds for POF letter|
How to get a proof of funds letter
Getting a proof of funds letter is an important step in making an offer and buying a home. It’s good to be prepared, but don’t request the proof of funds letter too early. The seller or other requesting party will want to see a current date. However, if your funds are spread over multiple accounts, you can move those liquid assets immediately into one account or you can request proof of funds letters from multiple accounts.
Here’s how to request a proof of funds letter:
- Close out your stock market positions if you plan to use those funds.
- Transfer the amount of money you need to show proof of funds to a single account.
- Check that your financial institution has accurate contact information for you.
- Before you’re ready to actively start shopping for a house, contact your bank to learn how to request the proof of funds letter.
- Request the proof of funds letter from your bank or credit union. Many financial institutions can provide a POF letter within 1 day.
- Safeguard your personal information throughout the process. Only provide a POF letter to an invested party in the purchasing process.
- Consult your realtor if you have questions or concerns about a POF letter request.
Proof of funds: Quick summary
- Only liquid assets (cash, lines of credit, money market funds) are eligible funds in a POF letter.
- You may also need to provide a mortgage pre-approval letter. Your pre-approval demonstrates that you’re a vetted borrower and the POF letter proves you have the money (for a down payment and closing costs) to complete that mortgage agreement.
- A lender may ask for proof of funds before approving you for a mortgage.
- Your realtor might ask for a POF letter to ensure you’re a serious buyer.
- When you make an offer, the seller may require a proof of funds letter (in either a cash sale or a mortgage contingency sale) before they feel comfortable taking their home off the market.
- Banks can ask for proof of funds during the short sale process.
- If you have multiple financial institutions, you can get POF letters from all of them. Still, combining the funds you’ll need into a single account is the preferred, more streamlined process.
- Requesting a proof of funds letter from your bank or credit union is simple and usually doesn’t take longer than a few days.
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