So, you’ve saved up enough money to close the deal in your dream home. If you wish to convince the seller that you’re the right buyer, you'll need a way to prove this cash really exists. The way to do this is through an evidence of funds letter. Without them, selling real estate won’t know whether you really can afford to buy the home.
What is a mortgage proof of funds letter?
Proof of funds letter definition
A proof of funds letter is a document providing evidence that a borrower has enough liquid assets, or cash, to purchase a house. Homebuyers need this paperwork to show towards the seller that they'll cover purchase costs, including the down payment and closing costs. If paying for the home in cash, the customer will have to provide evidence of accessing enough money to cover the entire price of the home. Most sellers won’t take the home off the market before confirming the buyer has these funds put aside.
How to obtain a proof of funds letter
Getting an evidence of funds letter is rather painless. You can aquire the letter by requesting one from the bank or other lender holding your hard earned money. A web-based or paper bank statement may also suffice. The financial institution should be able to obtain the letter back in under a week, and often within a day or two.
Keep in mind the money must come from a checking or checking account, but a line of credit or money market account would also qualify. You need to be in a position to withdraw this money easily, which means investments such as stocks, bonds, mutual funds and life insurance are excluded.
The funds also cannot be in someone else’s bank account. If you plan to use some of your non-liquid assets, you will need to divest some of them to obtain the cash.
What types of funds will qualify?
If you need to get a proof of funds letter, you need to make sure you have sufficient money. However, not all of your funds might qualify.
For example, an easy bank statement will typically qualify, however in certain cases you might need much more proof. That may involve getting a certified letter out of your bank describing just how much money you have available for the transaction.
In some cases, a line of credit may also suffice as proof of funds. However, if you’re trying to get a mortgage it’s usually do not to rely on other debt to show proof of funds.
Keep in your mind that the funds need to be liquid to qualify. That means that assets like mutual funds or life insurance, when they have value, may not qualify when they aren’t sufficiently liquid.
Why homebuyers require a evidence of funds letter
Providing evidence of funds is usually a requirement of the homebuying process. Without a proof of funds letter, your home sale could fall through.
A proof of funds letter might also give you a benefit when making an offer if multiple individuals have bid on the home you would like. The purpose of the letter would be to prove that your offers are legitimate, so by creating a evidence of funds letter, you might stand an improved chance of pushing your offer to the peak from the list.
It might not be essential to provide evidence of funds if the house is for sale by owner and also the seller doesn't have a real estate agent. This scenario is the exception, however, not the rule.
Difference from a preapproval letter and a proof of funds letter
A proof of funds letter is not the same as a mortgage preapproval letter, which is documentation from a lender showing they're willing to provide a loan for that balance of what the customer will owe on the mortgage. Generally, you will need to provide both a preapproval letter along with a proof of funds letter before the home sale can move ahead.
Example proof of funds letter
Your bank can provide a template for any proof of funds letter, or find sample letters like this one from the Corporate Finance Institute online, or the one below:
[DATE] [NAME OF BANK] [ADDRESS OF BANK] [EMAIL AND/OR PHONE NUMBER]
This letter and enclosed fiscal reports are to certify that [NAME Of human OR COMPANY] is a client with our bank since [YEAR] and it is up to date.
[NAME OF PERSON or COMPANY] has a total combined balance of money deposits with this bank of USD $______. We've attached copies from the statements for every of [NAME OF PERSON or COMPANY’S] accounts at our bank.
If you need any further information or have any queries, please do not hesitate to contact us directly at [EMAIL AND/OR PHONE NUMBER].
[SIGNATURE] [NAME OF BANK REPRESENTATIVE] [TITLE]
About this PAGE
- Exactly what is a proof of funds letter?
- How to get a evidence of funds letter
- What types of funds will qualify?
- Why homebuyers require a evidence of funds letter
- Distinction between a preapproval letter and a evidence of funds letter
- Example evidence of funds letter