One of the important documents you’ll encounter when buying a house is a proof of funds letter. The letter proves you have enough money to complete a real estate transaction. As the buyer, you may need to provide this letter to the seller.
Let’s explore proof of funds in real estate, including how to request the document from your bank.
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Proof Of Funds (POF): A Definition
A proof of funds letter verifies whether an individual or business has enough money to cover purchase costs in a real estate transaction. Sometimes referred to as a POF, the document gives the seller confidence that you can complete the transaction.
Having an official letter on hand is one of the best ways to help make sure the home buying process goes smoothly. But, in some cases, you may be able to provide proof of funds without a formal letter. Instead, you might submit a bank statement, screenshots of your account or a PDF showing your funds.
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How Does A Proof Of Funds Letter For Real Estate Work?
When you send a purchase offer to a seller, the best practice is to attach a proof of funds letter so the seller knows you have the funds to back up the offer. A proof of funds letter proves to the seller that your offer is strong, and the chances of delays with the transaction are less likely.
Even if you’re using a mortgage to spread out the costs of buying a home, the upfront cost to close on a home is expensive. You must show you can comfortably afford your down payment and closing costs.
Though less common, your mortgage lender may also ask to see a proof of funds letter during the application or underwriting process to confirm that you’re using for your closing costs and down payment isn’t from a loan you received.
It’s best to keep an updated POF letter handy while house hunting.
What Goes Into Writing A Proof Of Funds Letter?
If a seller or lender requires a POF letter, they usually want an official document from your bank or other financial institution.
Let’s take a closer look at what this document should look like.
What Should A Proof Of Funds Letter Include?
A proof of funds letter should include some basic information, such as:
- The bank’s name and address
- An official bank statement
- Balance of total funds in your checking or savings account
- Signature of an authorized bank employee or notary
- The date the money was deposited in the account
It should also include the bank’s contact information if the seller or lender has any questions.
How Do You Write A Proof Of Funds Letter?
The bank writes the proof of funds letter, but you may need to request it in writing. When asking for this documentation, request a POF letter for the desired amount. Your financial institution should be able to generate the letter within a day.
Do You Need To Prove Your Funds Are Available Immediately?
Proof of funds letters only include money that’s immediately accessible, including liquid assets, like money in checking and savings accounts. Assets you can’t easily access, like mutual funds in a retirement account, shouldn’t be in the letter.
How To Use A Proof Of Funds Letter From Your Bank
Now that you understand the necessity of a POF letter, let’s walk through how to use one.
1. Request A Proof Of Funds Letter From Your Bank
To request a POF letter, make a written request, head down to your local bank branch or call customer service.
Most financial institutions can generate the letter demonstrating your funds across all accounts in 1 day. But if your funds are scattered across banks, it may take a few days to receive the document from each bank.
2. Make An Offer
Once you have the proof of funds letter, you can make an offer on a home. When crafting your offer, give the seller a time frame to decide on your offer. If all goes well, you’ll hear back about an accepted offer soon.
3. Provide The Seller With A Proof Of Funds Letter
If the seller accepted your offer without a POF letter, you’ll likely need to provide one soon after your offer is accepted. You’ll need to provide a proof of funds letter and any requested supporting documents, like bank statements or other related documents. Before handing over the information, remove sensitive details, like your bank account number and home address.
4. Keep Your Proof Of Funds Letter Secure
Your POF letter has a lot of personal information, including your bank account number, home address and other contact information. Store your letter somewhere safe and only share it when sellers or lenders request it.
If you’re not sure whether to send a proof of funds letter, check with your real estate agent. It’s important to avoid scams and keep your personal information safe and confidential.
Are A Proof Of Funds Letter And A Preapproval Letter The Same?
A preapproval letter and a POF letter aren’t the same. However, both can help you complete the home buying process.
A mortgage preapproval letter gives the seller confidence that you’ll likely qualify for the loan from the lender. A POF letter gives them confidence that you can afford the upfront costs of closing on the home.
The letters serve different purposes, but both can send strong messages to a seller that you’re serious about buying their home.
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Proof Of Funds FAQs
Now that you know the basics, let’s look at some common questions about proof of funds letters.
What counts as proof of funds for a cash offer?
A proof of funds letter is critical when making a cash offer on a property. How you provide the proof will vary based on the transaction.
In some cases, you may be able to provide a certified financial statement, a copy of a savings account balance, security statements or custody statements. In other situations, you may need a letter from your bank or other financial institution.
Why do sellers require buyers to have proof of funds for real estate transactions?
A POF letter encourages a seller to move forward with a buyer’s offer because they know the buyer has the money to close on the home sale. The documentation creates trust between the buyer and seller as they navigate this major financial transaction.
As a rule, sellers and real estate agents won’t accept an offer without this critical documentation.
When do you need a proof of funds letter?
Mortgage lenders may require a proof of funds letter earlier in the loan process or during underwriting. A seller may request a POF letter when you submit a purchase offer or request one soon after the offer is accepted.
The Bottom Line: A POF Proves You Can Afford The Home
A proof of funds letter confirms for the seller that a buyer has the money to purchase their home. Securing this letter is an important step as you move through the home buying process.
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Sarah Sharkey
Sarah Sharkey is a personal finance writer who enjoys diving into the details to help readers make savvy financial decisions. She’s covered mortgages, money management, insurance, budgeting and more. She lives in Florida with her husband and dog. When she's not writing, she's outside exploring the coast. You can connect with her on LinkedIn.
