Savvy real estate investors are all aware that successful rock solid offers tendered have five principal components, one of which is the proof of funds letter (POF). The other four components are:
(1) purchase and sales agreement, which is the legal sales contract detailing the parties, terms, conditions, and contingencies, operative dates of possession and closing, address and legal description, the offered price and earnest money submitted.
(2) the comps, to support the offer tendered
(3) the estimate of repairs
(4) The HUD 1 detailing the transaction terms and services charged
The proof of funds is that fifth component, the funding component. Any offer to be consummated requires a proof of funds submission. This essential piece of the real estate transaction is to make certain, for the seller or lender, actually have the money to close your side of the transaction. You must be legitimized as a real player. The proof of funds letter is then designed to provide the confidence the deal will be closed. Sometimes, nowadays, even a proof of funds letter may not be sufficient. Sometimes, a verification of deposit (VOD) will be required, actually providing a bank statement showing the money is there. More often than not, however, the POF will suffice.
By definition, a proof of funds letter is a document or bank statement proving that a person has the financial ability to perform a real estate transaction. The proof of funds letter provides the selling or lending parties the confidence that the funds are there to consummate the transaction and the offer tendered is legitimate.
It is most commonly utilized when buying a house or purchasing real estate as the sellers, their real estate agents or brokers, or lenders involved, demand adequate proof of affordability. Most commonly, the one providing the POF requests his or her bank to confirm and validates sufficient funds are, in fact, on hand. It is common practice for real estate agents to require they be made part of any offering submission to sellers along with any purchase offer contract presented.
Most seasoned real estate investors will urge for your proof of funds letter, to best work alongside an investor friendly title company local to you. These investor friendly title companies have the savvy experience to know how to back you up should the seller or other party seek verification of the POF letter.
To show proof of funds, most prefer seeing an actual bank statement or portfolio account statements from Ameritrade, ING, or others like them, verifying cash on hand. If you elect not to or cannot show proof of funds in the form of bank statements, the best way to proceed is to get a letter from their bank stating they have sufficient funds to purchase the subject real estate. Most typically, it will be a letter from a bank officer indicating the funds are liquid and readily available generated on bank letterhead and duly certified by a representative bank officer.
********HERE IS A TYPICAL EXAMPLE OF A BANK GENERATED PROOF OF FUNDS LETTER*******