What Is a Proof of Funds Letter in Real Estate?
Key Takeaways
- A proof of funds letter shows that you have enough liquid assets to cover your financial responsibilities when purchasing a home.
- Mortgage lenders may require a proof of funds letter to show you have money for a down payment and closing costs.
- If you are making a cash offer to purchase a home, sellers will likely want to see a proof of funds letter.
- Money must usually be readily accessible for a proof of funds letter.
There is usually a lot of paperwork involved in real estate transactions. If you are further along in the homebuying process, you might need a proof of funds letter
A proof of funds letter shows you have the money to complete the real estate purchase. A mortgage lender or a seller may require this type of documentation to move forward.
What Is a Mortgage Proof of Funds (POF) Letter?
A proof of funds letter is documentation that verifies you have enough liquid assets to cover the purchase price of a home.
With a proof of funds (POF) letter, you’re able to provide evidence to sellers and lenders that you have enough money for a down payment and closing costs when buying a home.
Proof of funds letters are more commonly used for all-cash purchases of real estate, and realtors and sellers frequently ask for one before they accept your offer.
When You May Need a Proof of Funds Letter
You will need a proof of funds letter in several situations when making a home purchase.
- To get a mortgage: Getting a mortgage requires going through the loan approval process. Though current bank statements are usually sufficient evidence of your available assets, you may need to provide proof of funds during this process showing that you have the money for a down payment, closing costs, and other upfront expenses.
- To purchase a home or make a down payment with cash: Sellers and lenders want assurances you have the money to pay for the home, or your down payment, before they move forward with a real estate transaction.
Your proof of funds letter provides peace of mind to the seller or lender that you have the money you claim, and that you need for the transaction to close.
What Information Do Proof of Funds Letters Contain?
A proof of funds letter must contain details about how much money you have available to you. You will need to prove your account balances and where your money is being held to ensure accessibility.
Here are some of the specific details that need to be included in your proof of funds letter.
- The name of the financial institution where the funds are held
- The name of the account owner(s)
- The available balance in your account
- The date the funds were available
- A signature of an official of the institution where your funds are held
You may want to include your bank statements and should consider blacking out sensitive details, like your account number, before providing the proof of funds letter to the seller.
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What Types of Money Can Be Used for a Proof of Funds Letter?
- When you provide proof of funds documentation, you can only use certain kinds of funds. The money must be readily accessible when you need it, such as: Checking and savings accounts
- Money market accounts
- Certificates of deposit
- Gift funds or grants as long as they are documented properly
- Approved lines of credit
You cannot use assets like life insurance, nor can you use retirement accounts or investments, without removing the money from those accounts and facing potential penalties. That's because the funds in these accounts are not immediately accessible when you need them and/or the value of the accounts can change quickly due to investment performance.
Proof of Funds Letter vs. Prequalification or Preapproval Letter
A proof of funds letter is different from a mortgage prequalification or preapproval letter, which you can also use to show a home seller you are likely to be able to access the funds to buy a house.
Here are the key differences between the types of documentation.
Getting prequalified and preapproved are different processes and, in some cases, your mortgage lender may want to see proof of funds before giving you preapproval.
How to Get a Proof of Funds Letter
You’ll need to request a proof of funds letter from your bank or financial institution. Most of the time, banks can provide these letters in one to two business days. Here's what you should do to get this letter:
- Combine funds into one account: If you have money spread across multiple accounts, you might have to get multiple proof of funds letters. To avoid this, you can transfer everything into one centralized account and request a single letter.
- Obtain a letter from your bank or financial institution: An official from the financial institution will need to provide the proof of funds letter. You'll need to follow your bank's process for requesting one.
- Give the letter to the seller, lender, and/or real estate agent: When the letter is ready, provide it to those who requested it. Be sure to block out any sensitive information, like your account number.
This process should be relatively straightforward, but give yourself time to complete the steps before you need the letter.
Proof of Funds Letter FAQs
If you still need to know more, here are the answers to some frequently asked questions about proof of funds letters.
When Do You Need a Proof of Funds Letter?
You may need a proof of funds letter if you are buying a home and the seller or lender requests one. The purpose is to show that you have the money needed to complete your part of the transaction.
Does a Proof of Funds Letter Need to be Notarized?
A proof of funds letter normally does not need to be notarized. Since it is an official bank document, printed on bank letterhead, this additional verification step is not needed.
Is It Normal for a Realtor to Ask for Proof of Funds?
A proof of funds is a standard request from a realtor. Real estate agents want to make sure you have the money necessary to complete the transaction before spending time showing you homes. A seller's agent also wants to make sure you have proof of funds before accepting an offer and changing the property's status from active on the MLS.
Final Thoughts: A Proof of Funds Letter Can Make You a Stronger Buyer
A proof of funds letter is an important document you may need to purchase a home, and it's simple to obtain. To find out more about other homebuying requirements and to get started in securing a mortgage, reach out to Freedom Mortgage today to talk with a mortgage professional.
Christine Rakoczy has been a financial writer since 2008, contributing to major publications, including Credit Karma, CBS MoneyWatch, WSJ, and Forbes Advisor. While her special focus is diving deep into mortgages, Christine has extensive experience with all types of financial topics.
In addition to writing for online articles, Christine has also taught business administration courses at a career college and has served as a subject matter expert on numerous business and legal courses.
Christine earned her JD from UCLA School of Law in 2008 and has a BA in English, Media, and Communications, with a Certificate in Business Administration from the University of Rochester.
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