Understanding what preparations are necessary prior to buying property is crucial. The process of acquiring a property often requires a buyer to submit supporting documents. However, you should be aware that the seller may also need a Proof of Funds (POF) letter from you.
This article will provide you with all the information on the proof of funds you need to get and purchase the property you desire.
What Is A Proof Of Funds?
If you are purchasing a property, you may be required to provide a POF real estate document. A POF establishes an individual’s financial capability to prove to the seller that the home is within your means. A purchaser may be a person or a more prominent institution, such as a business or real estate investment trust.
Letter of funds availability is used to verify that a buyer has the cash reserves for a down payment, closing charges, and other transaction-related expenditures. Buyers paying cash for a home in full must provide proof that they can cover the whole purchase price, including taxes and other fees associated with the transaction.
Most sellers will not accept the offer unless buyers can prove they have the money for closing. The only possible exception is a transaction between personal friends or family members, in which good faith is implied.
When Is The Right Time To Get A Proof Of Funds?
Proof of funds should be obtained prior to making offers on real estate. It all depends on why you purchase a property and the institution issuing the POF letter.
In general, turnaround times range between one to four working days. Some sellers may allow you up to two days after making an offer to acquire a POF. But it’s in your best interest to have it ready before you even make the offer.
What Qualifies As Proof Of Funds?
Proof of funds when buying a house does not necessarily need a formal letter. Having a bank statement with a sufficient balance may be adequate evidence in certain situations. A statement from your money market fund or a verified financial statement is also acceptable.
If your seller accepts these types of evidence, they are simple to provide. Today, most consumers can access their bank statements online and print them. This is also true for trusts and any other financial organization.
In the case that you need a letter, your bank or another organization can provide one. It will outline your present financial resources, letting sellers know that you are able to proceed with the transaction. To acquire this letter, you must contact your bank directly.
When reviewing your financial sources, remember that only liquid cash may be considered. Life insurance, stocks, mutual funds, and bonds do not qualify. Furthermore, if a third party is covering a portion of the cost, that sum must already be in your account. If the money is in the other person’s account, it cannot be used as acceptable proof of funds.
Why Is Proof Of Funds Necessary?
Sellers and lenders aren’t going to accept your word for what you swore you have, no matter how much you wish they would. It’s simple to declare you can afford a specific price range of property, but sellers will want more than your word unless they already know and trust you. The POF is a valuable reference for sellers sorting through offers in today’s competitive property market to identify those with the greatest chance of closing a deal.
While some purchasers who deal directly with homeowners may not be requested for a POF, the majority will be required to give one before making an offer. Many sellers prefer to receive the POF and the offer simultaneously, so they may assess the credibility of the offer immediately. A buyer may submit an offer without a POF. However, they will usually be required to provide one within a day or two.
Real estate agents may also request proof of funds for home purchase from their client well in advance of the offer stage to screen potential buyers. Knowing a client’s budget allows an agent to better match them with suitable properties and gives them more confidence when negotiating with sellers.
Pre Approval Vs. Proof Of Funds
A Proof of Funds is different from a pre-approval letter. A preapproval letter from a lender guarantees that the buyer will get a loan, while a proof of funds letter proves that the buyer has the cash on hand to cover the remaining costs of buying a property.
Top 3 Reason Why A Seller Require Proof Of Funds
A seller or their agent may want evidence that the buyer has enough funds for the following reasons:
To Assess Offers
When there are various offers on a property, a competent realtor may ask for evidence of funding. By distinguishing between those who have a real estate proof of funds letter and those who do not, they may better determine whether offers are worth accepting.
Agents can narrow down the pool of potential buyers and gauge their level of interest in property more accurately when prospective buyers provide proof of funds. Due to the limited probability of a buyer having the necessary funds to close on expensive property, this is standard procedure.
Let’s say a prospective buyer has enough money for a down payment but not enough for closing charges. There is a high probability that the offer will fall through in this situation, resulting in the waste of time and resources for everyone involved. This can be avoided with a POF statement.
To Persuade The Buyer
A seller could ask for proof of funds to show serious interest in the property. Some real estate agents use this approach, hoping that a potential purchaser would either make a higher offer or move the purchase forward more quickly.
In other words, this serves as a good reminder of how meticulously one must approach real estate purchases. Such strategies are common to a competent real estate agent who wants to find the highest possible price for their client’s property. That’s why it’s crucial to have a real estate agent on your side who is looking out for your best interests.
To Get Clear Information About Your Funding
A seller may also want assurance that the money you’re presenting is from a reliable source, rather than something like a cryptocurrency that would need additional steps to convert into cash.
What Should a Proof Of Funds Include?
There are certain details that must be included in a proof of funds letter. Standard information that must be included are the following:
- Bank’s name and branch location
- Official bank statement
- Balance of funds in the checking and savings accounts
- Total fund balance
- Authorized bank personnel signature
If you want to use money from more than one account, you will need the details for each of those accounts. If you have several accounts, consolidating them into one might simplify reporting and make it simpler to track the sum of your available funds. Most financial institutions will provide a proof of funds paper within a day or two.
You should always keep your proof of funds paperwork in a safe place once you have obtained it. When devising a financial hoax, some con artists may ask for proof of funds to make sure they are targeting an individual with substantial financial resources.
There is sensitive financial data included inside that must be protected as well. Thus, be careful to only provide proof of funds to ones you know and trust after doing extensive background checks.
Steps on How to Acquire a Proof Of Funds
In most cases, obtaining POF is as easy as visiting a bank or printing one from the bank’s website. The processes to get one are detailed below.
Move Funds If Necessary
You will need to consolidate your assets and income by moving money from multiple accounts into a single one. Online transfers are convenient, but you may need to visit multiple banks to get the necessary checks. It is better to move all of your money into a single accountTo to reduce the risk of having your payment declined by the seller.
Request Proof Of Funds Letter
In most cases, a POF may be issued in as little as one business day if all of the necessary funds are readily available in a single account. However, if you still have to transfer money from one bank to another, it might take several days.
Make sure to also include your current contact information in your POF letter. To ensure everything goes well when purchasing a house, you should have this on hand before the seller asks for it, even if it is easy to request the letter.
Keep Your Proof Of Funds Secure
As with other financial records, you will need to ensure the security of your POF after receiving it. Important details like your account number and home address are stated in your POF. Thus, be careful not to share your POF with anybody who doesn’t have to have access to it.
Pay close attention to the requests you get, and be aware of those that seem suspicious. Talk to your real estate agent or lawyer if you have any questions about whether or not the individual asking your POF really needs one.
POF is a type of document that proves to a seller or lender that you have the money available to make a real estate investment. Therefore, it is highly recommended to get it in advance for a hassle-free procedure. Once you request the letter from your banking institution, you will be in for a good start to obtaining the necessary documentation to purchase the property.