What is a ‘Proof of Funds’ Letter? What Homebuyers Should Know
When you’re getting ready to buy a house you’re going to become very acquainted with your printing and scanning home office tools. That’s because it requires a lot of paperwork to get a mortgage approved by a bank, and they’ll want you to gather a ton of information about your financial history. This is particularly the case if you’re a first-time home buyer.
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What is a proof of funds letter?
One of those documents will be a “proof of funds” (POF) letter. This real estate paperwork lets the seller know that the prospective buyer (or entity) has enough money to cover the down payment and closing costs. Most likely, your realtor will send this to the seller’s realtor.
It’s not always required as part of the buying process but some sellers will request it.
Keep in mind that this document is not the same as the preapproval letter from a lender. That letter shows that a lender is willing to let you borrow the amount you’d have to pay to buy the house after you’ve covered the down payment and closing costs.
How do you get a proof of funds letter?
First things first. Combine all of your “liquid assets” (cash) into one account. This will help make it easier to show the bank exactly how much money you — and the other purchaser if you have one — have available. You may have already had your lender verify your source of income and the amount of money you have on hand.
By the way, you shouldn’t plan to spend all of that cash at closing and on the down payment. Keep in mind that home ownership repairs and maintenance can cost a fortune. Have your agent ask the seller what they’re looking to see as “proof of funds.” They might not require an official letter from the bank and instead, accept printed bank statements.
If all of your money is in an account at your local bank, visit that facility and ask for a “proof of funds” letter from them. Be sure to give your financial institution a few days. While it seems like every part of the home-buying process is “hurry up and wait,” allow for at least two business days to get this information from your bank.
If your proof of funds letter comes from the bank and includes bank statements and account numbers, block those out so third parties can’t see this sensitive information. You need to show liquid (accessible) assets.
What doesn’t count as funds in a POF letter?
Shares, bonds, life insurance policies, and mutual funds won’t count.
Making an all-cash offer on a house?
Learn More: 5 Types of Homes That Will Plummet in Value in 2024
You don’t need to show a prequalification letter. Simply get your POF document in order. Then check out these 20 cities where you can buy a home for less than $100K.
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This article originally appeared on GOBankingRates.com: What is a ‘Proof of Funds’ Letter? What Homebuyers Should Know
