A proof of funds letter is a document that proves that a home buyer has enough liquid cash to purchase a home. It's essential paperwork that all home sellers will want to see, so home buyers shouldn't feel prepared to make an offer without one.
“Sellers won't want to take their property off the market without knowing that the buyers are truly able to afford it,” says Linda Walters, a real estate agent at Sage Realty LLC in Wayne, PA. Here's what buyers need to know about how to get a proof of funds letter, including a free proof of funds letter sample and more.
Who needs a proof of funds letter?
Basically all buyers need to provide a proof of funds letter. Even if you're getting a mortgage to finance your home purchase, you'll still need enough money for a down payment (ideally 20% of the price of the house) and closing costs (an additional 3% to 4% of the home's price).
While lenders will delve deep into your finances to ensure you have the necessary cash on hand to close the deal, home sellers will also want to see that you have these funds set aside. That's why you provide them with a proof of funds letter, as well as your pre-approval letter from your lenders confirming that they're willing to loan you the rest of the money you need.
Home buyers who don't need a mortgage because they're buying the house in all cash aren't off the hook, either! They will also need to provide a proof of funds letter—for a much larger amount, of course.
Proof of funds letter vs. pre-approval letter: What's the difference?
Keep in mind that a pre-approval letter is by no means proof of funds. Mortgage pre-approval is a commitment from a lender to provide a buyer with a home loan. A proof of funds letter is a completely separate document that shows where you're keeping the cash you need to bring to the closing table.
What counts as proof of funds
You can get a proof of funds letter from the institution where your money is being held—typically a bank, but it can also come from another type of asset, such as an open credit line or money market account where funds can be accessed quickly.
Got a lot of your money in mutual funds and stocks? That can't count as proof of funds, since this money can't be withdrawn easily and the amount can fluctuate day to day, based on market conditions. So if you need to use some of this for your down payment, you should plan to transfer that money sooner rather than later into an account that'll count as proof of funds.
If the money you're using for your down payment is coming from several accounts, you should also consider pooling them all into one for simplicity's sake, recommends Maria Picardi-Kenyon, a real estate agent at Re/Max Tri County Realtors in Hamilton, NJ. (Note: While lenders will closely track where those dollars came from to make sure you aren't secretly getting loans from family members to foot this purchase, home sellers won't be so picky—all they really want to see is that the money exists.)
How to get a proof of funds letter—and when
Getting a proof of funds letter is usually a fast and easy process where you contact your bank and request one. While you can typically get one within a day or two, just keep in mind that some banks move more slowly than others, so ideally, you’ll want to give yourself at least a week for the statement to be issued. In other words, it’s best to obtain a proof of funds letter before you write an offer on a home.
As for when to provide proof of funds to sellers, some do it when they submit an offer on a home. But it's also typically fine to supply it shortly after the offer is accepted—usually within a 24- to 38-hour time frame, says Ed Corbett, a real estate agent and team leader at Keller Williams Realty in Atlanta, GA.
What a proof of funds letter should include
Essentially, a proof of funds letter includes the account holder’s name and current balance of available funds—all on bank letterhead and signed by a bank official. However, in many cases, a recent bank statement from a checking or savings account where the money is being held can also serve as proof of funds, so it's worth checking if that alone will suffice.
Nervous about forking over all that personal info on your bank statements (because many statements include credit card and social security numbers)? To protect your privacy, you can black out sensitive information on the statement before providing the statement to a seller. As long as it's clear that the account is yours and the money's in there, you're good to go.
A lot of banks have their own proof of funds templates, but in case you need your own, you can find a sample letter from RehabberPro.com, as well as below:
To whom it may concern,
We confirm, that _____[Name of Company/Individual]______ has available the sum of __________ as of this date. Should you require verification of the above mentioned funds, please contact us at your convenience.
Contact Info: __________
courtesy of realtor.com