Proof of funds: What is a POF letter in real estate?

Real estate transactions come with a lot of paperwork, especially as a buyer. Application forms, pay stubs, and other documents can leave you feeling overwhelmed, and understandably so.

The proof of funds letter is another key document to understand. Though they may not always be required for new real estate purchases, it’s important to know what they are in case the seller asks for a copy  when submitting an offer.

Proof of funds document basics

Proof of funds (POF) is a document that demonstrates how much money a person or entity has available. When purchasing a home, you may need a POF to prove to the seller that you can cover the purchase costs of a home. Remember that purchase costs can include the down payment, escrow, and closing costs.

• Your bank’s name and address
• An official bank statement, either printed at a branch or as an online statement
• The balance of total funds in your accounts
• The balance of funds in your checking or savings account
• Verification of the date the funds were in your account

What funds qualify as POF?

Several types of documents qualify as proof of funds. In some transactions, a simple printed bank statement can qualify. A certified financial statement or a copy of a money market account balance may also qualify. Other times, you will need a letter from your bank or financial institution that states the exact amount of accessible or liquid funds that you have available.

Here are some examples of financial sources that can qualify as proof of funds:

• Checking and savings accounts
• Money market accounts
• Pending sale of another property
• Documented gift funds that have been deposited
• Distributed inheritance funds that are accessible and documented

It’s important to note that your funds  must generally be liquid or easily convertible to cash. Some investment accounts may qualify if accessible without restrictions.

How is a proof of funds letter different from a preapproval letter?.

Preapproval letters and proof of funds letters both vouch for a buyer’s ability to finance a house, so one might understandably get them mixed up, but they aren’t the same. A preapproval letter is a document stating that a lender will provide a buyer with a loan.

By contrast, a POF letter states that a buyer has funds available to pay for the costs associated with the purchase of a home. These can be easily confused since they both provide proof of the buyer’s money, so it’s important to know the difference.

Preapproval letter

Preapproval letters show sellers that you can afford the home you’re trying to buy. It’s important to note that obtaining this document doesn’t guarantee that the buyer will get the loan. Preapproval letters:

• Are a step after prequalification letters in the home buying process
• Require the buyer to submit to a credit check and provide bank statements
• Show the seller that a lender has approved the buyer for the purchase price of the home
• Gives details about the buyer’s financed funds, not necessarily what’s in their bank account
• Can expedite the loan approval process once an offer has been made

POF letter

POF letters show that the buyer has enough money to cover the down payment and closing costs. In some cases, the seller may require a POF letter even if the bank or lender does not. POF letters:

• Are often requested by sellers in addition to a preapproval letter.
• Reflects the cash that the buyer has on hand rather than their financing
• Shows the seller that they can cover the down payment and closing costs
• Can help a buyer’s offer stand out when competing for a home

Why you might need proof of funds to buy a home

There are a few situations in which you might need POF. Here are a few examples:

• Buying property with cash: If you’re buying a home with cash, you’ll need to prove you have the funds to do so.
• Obtaining a mortgage: Your lender might ask for a POF letter to make sure you have enough money to cover the rest of the home’s cost.
• Making a cash down payment: If you’re making a down payment in cash, you’ll be asked to prove that you have the funds and that they’re not a loan.

What a proof of funds letter looks like

A proof of funds letter must include the following:

• Your bank’s name and address.
• An official bank statement, either printed at a branch or as an online statement.
• The balance of total funds in your accounts.
• The balance of funds in your checking or savings account.
• The signature of an authorized bank employee or notary.
• Verification of the date the funds were in your account.

How to get a proof of funds letter

If you decide to go to your bank or print the document online, a POF is relatively simple to obtain. Read on for the steps to receiving your proof of funds letter.

1. Move your money

If you have money in multiple accounts, you may need to move the necessary funds into one bank account. You can often make transfers online, but you may have to go to several banks to get checks to transfer money. We recommend consolidating your funds into a single account so that they are in one place, making the process easier for the home seller.

2. Request the letter from your bank

If your funds are all in one place, you can likely get your POF in a single day. If you’re moving funds from one bank to another, it can take several days.

You will want to ensure that all your contact information is up to date on your POF letter. While the process is as simple as requesting a letter and receiving it, you might want to have this information available before the seller asks for it to ensure a smooth home buying process.

3. Keep your information secure

As with any financial information, you’ll want to be sure that you keep your proof of funds letter secure once you receive it. Your POF might include sensitive information such as your account number and physical address. Never give your POF to anyone who doesn’t need the information to execute the sale of your new home. Be wary of fraudulent requests.

If you have any doubts about whether the person requesting your POF needs it, you can consult with your REALTOR^® or real estate lawyer.

The bottom line: A POF letter can help you close on a home faster

If you’re in the market to buy a home, you may need to provide a proof of funds letter to show the seller, or even your lender, that you have the funds needed to purchase the property. Once your funds are all in one account, simply ask your financial institution to provide the letter. Then you’ll be one step closer to having the documentation required to buy the home.

As we’ve said, most sellers will want to see that you have secured mortgage approval from a lender. That process can be quick and easy. Start the Rocket Mortgage approval process today so you’ll be ready when it’s time to start making offers.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.

Refinancing may increase finance charges over the life of the loan.

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