You’re ready to close on your investment! When you’re buying a house or piece of property, you may need to provide some documentation to your loan broker and to the seller. For example, you might have provided a preapproval letter, which shows the seller that your lender will give you a loan for a certain amount toward your purchase. But how does a proof of funds (POF) letter differ? We’re here to break down everything you need to know about proof of funds letters and ensure you can provide the correct information.
What Is a Proof of Funds Letter?
A proof of funds letter is a document proving that you, as an investor, can cover all the expenses of purchasing the property, showing your seller how much money you currently have available. A proof of funds letter is often required for all-cash real estate purchases to prove the buyer has the cash available to close the sale. This letter may also be necessary if you’re taking part in a short sale.
Why Is This Letter Necessary?
A proof of funds letter is a key asset when you’re purchasing a piece of property. It shows your seller that you’re serious about your offer and that you have the money to fulfill the sale. It also shows your loan broker that you have the means to pay back the loan.
Even if you’re making a cash offer or not getting a loan, a POF letter demonstrates that you can pay for the property and manage the monthly expenses.
The Difference Between a POF and Preapproval Letter
A preapproval letter and a POF letter are not the same. Both verify your financial ability to close on an investment, but they serve different purposes. A proof of funds letter assures your seller that you have the money to close on the property and to cover any significant expenses in the future. You can request one from your financial institution or bank.
On the other hand, a preapproval letter verifies that your lender will give you a loan to purchase your investment. You need to show your lender various documents to obtain a preapproval letter.
What Does a Proof of Funds Letter Need To Include?
Your real estate agent may ask to see a POF letter before collaborating with you in order to better understand your budget. When you request your POF letter, it should include:
- Your bank’s name and address and a signature from an authorized notary or employee
- An official bank statement
- The total balance of your funds in your checking or savings account
- The official date the funds were confirmed in the account
A proof of funds letter is an essential document that proves to your seller, loan broker, and real estate agent that you have the means to complete an investment transaction. Use this article as a resource for everything you need to know about proof of funds letters to prevent slowing down the purchasing and closing processes.