You are in the market to buy a home. You have your pre-approval letter and assume you are all set for sellers to take you seriously. Some sellers might, but some might not. The few that won’t, might ask you for what’s called a ‘proof of funds letter.’ In other words, they want to know that you have enough money to actually buy the home. The seller doesn’t want to waste his/her time on your bid if you don’t actually have the funds.
Typically, the proof of funds letter is required for cash buyers. These buyers put the seller at the highest risk. The seller has nothing to go on but the word of the buyer that they have the money available to buy the home. When you buy a home with bank financing, the seller at least has the word of the bank via the preapproval, that you have the funds to buy the home.
What is the Proof of Funds Letter?
Your bank or investment firm must write the proof of funds letter. You cannot write it. The letter must prove to the seller that you have the cash available to buy the home. This helps reassure the lender that your bid is serious and that you do plan to buy the home.
If you are not a cash buyer, but the seller is represented by a real estate agent, you may need this letter as well. Even if you put earnest money down on the home, the seller and/or real estate agent may require proof that you have the money for the down payment and the closing costs.
No matter the reason for the letter, it must meet the following guidelines:
- It must be written on the bank’s letterhead
- It must be dated
- It must include your full name
- It must include the total amount of funds that you have available
In addition to the letter, it’s a good idea to attach the last two months of your bank or investment statements so that the seller can see for themselves that you have the funds.
How to Get the Proof of Funds Letter
In order to obtain the proof of funds letter, you’ll need all of your money in a liquid account. For example, if you have the funds tied up in stocks right now, you’ll need to sell the stocks. Once you have the proceeds, you can deposit them in a liquid bank account. You can then request that the bank write you the letter.
If you ask the bank to write the letter before you sell the stocks, they will not be able to do so – the account must have the actual funds before they can write the letter. Even if you sold the tocks but don’t have the cash in hand yet, the bank cannot write the letter. They cannot write it until you physically deposit the cash in the account.
Watch Large Deposits
Before you ask for the proof of funds letter or provide the seller with your bank statements, be mindful of large deposits. The seller, bank, or real estate agent may question where the money came from if they see a large deposit in the account that occurred recently. We’ll use the above example again. If you sold stocks, keep the proof of the sale and a copy of the check written to you. It’s also best if you keep the deposit ticket to show that you deposited the exact amount of funds that you received from the sale of the stock.
Receiving a proof of funds letter isn’t impossible, but it could take a little work, especially if everything is not quite in line yet. Make sure you talk with your real estate agent to determine exactly what you need. There is a difference between a preapproval letter and a proof of funds document. Knowing which one the seller and/or agent wants will help you save time when figuring out how to get the seller to accept your bid.