Proof of Funds in Real Estate & What You Should Look For

Navigating the real estate market can be daunting, especially if you’ve only bought or sold a home a few times. One essential aspect you should understand is the concept of “Proof of Funds.” This is a document that proves whether or not a potential buyer has the funds to purchase a property, and can make the entire process a smoother one for all parties involved. 

What does “proof of funds” mean? 

Proof of Funds refers to a document that demonstrates a person’s or entity’s ability to complete a transaction. In real estate transactions, Proof of Funds shows whether or not a potential buyer has the funds to buy the property. This document offers peace of mind for sellers and to real estate agents because it shows that the buyer is financially ready to follow through with the purchase. 

This financial readiness means that last-minute issues are much less likely to occur, and so you’re much less likely to have the sale fall through. It can also work in the buyer’s favor when negotiating because they could show that they are ready to pay in cash as soon as possible, which is a lot more attractive than waiting for a buyer to attain a mortgage. 

What are the risks of not getting Proof of Funds? 

If you’re working with professionals, it’s likely that they will make sure you get Proof of Funds, but you shouldn’t rely on other people (even professionals, like Title companies) to check for you. Minor consequences of not getting Proof of Funds include the sale falling through close to closing, but more severe consequences could be a scam. While housing scams are not common, they aren’t unheard of, either. To learn more about how to avoid scams when selling your home, click here. 

What should a Proof of Funds letter look like? 

A proof of funds letter is a document provided by the buyer’s bank or financial institution. It contains the following information: 

  1. Name and address of the bank 
  2. Name of the account holder (the buyer)
  3. Balance of funds available 
  4. Date of the letter 
  5. Contact information for verification

What are acceptable forms of Proof of Funds? 

Several types of documents can be proof of funds in real estate transactions: 

  1. Bank statements: this is the most common form of Proof of Funds. 
  2. Certified financial statements: this is used by corporations to show their financial strength 
  3. Money market accounts and mutual fund statements: this can be used as proof in some situations, provided they can be liquidated quickly 
  4. Real estate trust account: a statement from the trustee can serve as proof of funds 
  5. A line of credit: in some cases, proof of an open line of credit for the entire transaction can be acceptable 

Proof of Funds can be physical or digital. The form of the Proof of Funds is less important than the verification; a paper or PDF format will still be verified by contacting the bank or financial institution. 

What red flags should you look for with Proof of Funds? 

When dealing with large sums of money, it always serves to be careful when assessing documents that are proof of commitment or that ask you to commit to something. You should watch out for: 

  • Outdated documents: any Proof of Funds document should be recent, generally no more than 30 days old 
  • Rounded figures: There may be an even number presented on the Proof of Funds document, but it should not be rounded up or down (for example, if there is $160,000 in the account, that’s fine, but if the actual amount is $159,968.79, that’s what should be shown) 
  • Unofficial documents: the document should come from a recognized and reputable financial institution 
  • No contact information: all reputable documents will provide a way to verify the information with the institution 

How do you verify Proof of Funds documents? 

Any document you receive as Proof of Funds should include contact information for the institution so you can verify the information. All you need to do is simply reach out to the contact details and confirm the document’s authenticity. If in any doubt, reach out to the financial institution separately and ask them how to verify the document. 

Is Proof of Funds always necessary? 

In many real estate transactions, Proof of Funds is not something you have to share directly with the seller. However, in cash-only transactions, in a hot market, or in high-value transactions, Proof of Funds is almost always necessary. 

This is because the seller (or real estate agent) wants to know that they aren’t wasting time with someone who doesn’t have the financial means to follow through. In some high-value or high-demand markets, you may even need to show Proof of Funds before you will be able to go for a viewing. 

How does Proof of Funds work with a cash home-buying company? 

Selling a property to a cash home-buying company is an increasingly popular option for many homeowners, particularly those seeing a quick and hassle-free sale. Cash home-buying companies offer the benefits of a streamlined process, eliminating the typical obstacles related to inspections, appraisals, and buyer financing. 

However, the issue of Proof of Funds is still important, as it shows that the company is legitimate and capable of following through on its offer. As discussed earlier in this article, this will likely be a bank statement or a letter from their bank certifying that they have the cash to purchase your home for the agreed-upon purchase price. 

Ready for a Fast Sale? We Can Help 

Understanding and providing proof of funds is a vital part of buying and selling property. It lends credibility to buyers, gives sellers peace of mind, and helps to make the transaction more efficient. Whether you’re buying or selling, knowing what to look for and how to handle Proof of Funds can make the entire process much easier. 

If you’re looking for a swift, hassle-free sale, we can help. We buy houses in as-is condition for cash, offering a streamlined solution for sellers who need to move fast or have a property that may be difficult to sell to buyers looking for a new home. We can move quickly without the delays associated with delays typical of traditional sales, often closing in just a matter of weeks. To find out more or to get an offer on your home, click here.

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