What is proof of funds (POF) in real estate?

When buying a house, it’s important to understand the requirements. You’ll need to provide certain documentation to obtain a mortgage, but did you know you may also need to provide a letter to the seller?

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.

What funds qualify as POF?

There are several types of documents that qualify as proof of funds. In some transactions, a simple printed bank statement can qualify. Additionally, 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.

It’s important to note that your funds must be liquid to qualify. This means that mutual funds, life insurance, another person’s bank account, shares, bonds or proof of other possessions do not qualify as POF when you’re trying to buy a house.

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

A preapproval letter and a proof of funds letter are not the same. A preapproval letter is a document stating that a lender will provide a buyer with a loan. In contrast, a POF letter states that a buyer has funds available to pay for the costs associated with the purchase of a home.

Preapproval letter

A mortgage preapproval letter is a gross estimate the lender provides to inform you of how much they will lend you and lets sellers know that you will be able to afford the home.

To get preapproved, lenders verify a buyer’s financial information, like bank statements and pay stubs, and do a hard credit check. For example, after you apply to Rocket Mortgage^®, an underwriter will take a closer look at your assets and financial documentation to decide what kind of mortgage loan you qualify for. To make sure you send in all the required information, you can use a mortgage approval checklist when submitting your application.

POF letter

Sellers will ask for POF in addition to a preapproval or prequalification when they want to see evidence that a buyer has enough money to cover closing costs and their down payment. Sellers may also require a POF even if a bank or lender does not require it to approve you for a mortgage. So, keep in mind that it’s a good idea to have a POF no matter what.

Why you might need proof of funds to buy a home

There are a few situations in which you might need POF, including:

• Buying property with cash: If you’re buying a home in cash, you will need to prove that you have the funds to do so.
• Obtaining a mortgage: You might need POF to mortgage a house if your lender needs to see that you have enough money to cover the remainder of the cost of the home.
• Making a cash down payment: If you are 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.

1. Move your money

If you have money in different accounts, you need to move the necessary funds into one bank account. You can 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 and less likely to be denied by the home seller.

2. Request the letter from your bank

If your funds are all in one place, you can get your POF in 1 day. If you are moving funds from one bank to another, it can take several days. 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 will want to be sure that you keep your proof of funds letter secure once you receive it. Your POF might hold sensitive information such as your account number, physical address and more. Never give your POF to anyone who does not 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: how to use a proof of funds

A POF is simple to obtain. Once your funds are all in one account, you can ask your financial institution to provide the letter. Then you’ll be one step closer to having the documentation required to buy the home.

Most sellers will want to see that you have secured mortgage approval from a lender. That process can be quick and easy. Start the mortgage approval process today so you’ll be ready when it’s time to start making offers! You can also speak with our Home Loan Experts at (833) 326-6018.