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If you are planning to buy a home, you should provide documentation that validates your income and proves you can afford to cover all expenses. A Proof of Funds (POF) letter from your bank or financial institution does just that and signals the home seller that you are a serious and financially qualified buyer. Also, if you have multiple bids, you may have an advantage when making an offer at home. Find out what this letter entails and how to get it to buy in your home.
What is a Proof of Finance (POF) Letter for Mortgages?
A certificate of funds is a document that provides evidence that you have enough liquid assets or cash to buy a home on a mortgage. This document is required to show lenders and sellers that they can afford to buy a home, including down payments and closing costs.
Similarly, if you pay for a home with cash, you will need to prove that you have enough money to cover the entire cost of your home. Most sellers will not return home from the market before they can confirm that the buyers have these funds in place.
The purpose of proof of funds for real estate is to prove that your offer to buy a home is legal. Without a certificate of funds, your offer may not even be guaranteed to be considered.
If you are in a bid war, a certificate of funds can also indicate that you are prepared with funds (either down payment and closing costs or full speed trading).
However, if the home is being sold by the owner and the seller is not working with the real estate agent, you may not need to provide proof of funds. This scenario is an exception and not a rule.
What types of funds are eligible?
You can use different types of funds to qualify for a mortgage such as:
No matter where you are raising, your funds need to be liquid. This means that while assets such as mutual funds and life insurance are valuable, they may not qualify if they are not fully liquidated.
Pre-approval and Funding Certificate
The pre-approval letter and the certificate of funds are two separate documents, but both are important when buying a home. You will need a pre-approval form for your mortgage before you can get a mortgage. This is a document from a mortgage lender that shows the amount of a proposed loan to a particular borrower. The pre-approval letter is not a solid confirmation that you have funding, but it is another document you need to provide when making an offer at home.
Once you find a home you like and want to offer, you will need to present a certificate of funds to the lender and seller. This letter ensures that you have enough liquid funds to buy a home. Without a certificate of funds, your offer is less competitive and depending on the situation, the seller may not consider your offer at all.
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Examples of funding evidence letters
Your bank can provide a certificate of funds, or you can find examples of funds example such as below:
How to get a certificate of funds
In many cases, a simple bank statement is sufficient as a proof of funds, but it may be necessary to provide more context in official letters from the bank. Sometimes the lender fills out the request form to the borrower and is then transferred to the bank. In other cases, you may need to request it yourself. Here’s how:
- Put your money in one account: If you are using funds from multiple accounts or cited from an investment account, consider moving them all to a single checking or savings account. If you are going this route, try moving all your money at least two months in advance until you have been approved in advance for a mortgage and create an offer at home. This gives the funds “seasonal” time. Keep a careful record as well. Your lender will want to see the statement that will make when funds are moved from one account to another.
- Send a request to the bank. Depending on the bank, this process may be called “verification.” Typically, this request must be made directly at the branch location or online using a special form. Banks often receive documents within a few days, usually within a week.
- Provide a letter to the seller: As soon as you receive the certificate of funds, give the copy to the lender and seller. Like all mortgage documents, keep another copy of the letter in a safe place.
