Proof of Funds Letter: Why Is It Important?

September 25th, 2023  / Author: Cesar Gomez
Costs and Taxes

Proof of funds letter is one of the most relevant documents in a real estate transaction. Generally, all buyers should provide proof of funds. Proof of funds confirms whether a person or organization has enough funds to meet the purchase price. This agreement assures the seller that the buyer will be able to complete the purchase.

As the seller, you should require a proof of funds letter from the potential buyer before you engage in the transaction.

In this article, we will discuss proof of funds so you can fully understand the importance of proof of funds letter and what to expect from it as a seller.

How Does a Proof of Funds Letter Work?f

Providing proof of funds is a usual requirement in a home-selling process. Unlike contingencies that protect the buyer, proof of funds letter informs the seller that the buyer has the financial ability to fund their offer. It's crucial for a seller to establish whether a potential buyer has the money to back their proposal before accepting it. If not, it may result in being under contract with a client who won't be able to finish the deal because of a lack of money.

When a seller receives an offer, the buyer must provide a proof of funds letter and include any supporting documents, such as bank statements.

In other words, buyers need this documentation to prove to the seller that they have enough money to pay for the purchase costs, the down payment, and closing costs. That said, they should require a proof of funds letter from their bank even before making an offer. The bank should be able to process the letter in a few days. When proof of funds is received, the process of selling can continue.

It is important to note that the proof of funds letter does not always have to specify how much funds the buyer has. It can either show the full balance in their account or confirm that the account holds enough to cover the price of the house without defining how much more there is in the account.

A proof of funds letter encourages a seller to accept the buyer's offer since they are confident that the buyer will be able to close on the home-buying process. Thus, documentation creates trust between the buyer and seller as they are together in this transaction, and it is in everyone's best interest.

What Qualifies as Proof of Funds?

A proof of funds letter can be obtained from the institution where one's funds are held, typically a bank. However, it can also be received from another type of asset, like an open credit line or money market account, where money can be accessed easily. A recent financial statement from a checking or savings account where the money is held can also serve as proof of funds in many cases, so it's useful to check to see if that alone will suffice.

Mutual funds and stocks do not qualify as proof of funds since the money cannot be easily withdrawn, and the amount can vary from day to day, depending on market circumstances. So, in case you want to use some of this money for a down payment, plan to transfer it as soon as possible into an account that will serve as proof of funds.

Proof of Funds for a Cash Offer

The proof of funds documentation is particularly crucial when making a cash offer on a property. Based on the transaction, different methods are used to produce this proof.

In some situations, a buyer may be able to submit a certified financial statement or a copy of the balance of a savings account. In other cases, he could get a letter from his bank or another financial institution. Security or custody statements are further alternatives.

What Information Should Be Included in a Proof of Funds Letter?

A proof of funds letter should have several essential details, like the ones listed below:

  • Name and address of the bank
  • Officially issued bank statement
  • The total amount of money in their checking or savings account as well as the balance of their bank account
  • Signature of a notary or authorized bank employee
  • The date of funds being in the account

In addition, the contact details of the buyer should be included if the seller has any additional questions.

What Errors Are Frequently Made When Writing a Letter of Proof of Funds?

It is crucial to include only funds that are immediately accessible when writing a proof of funds letter. So, liquid assets such as deposit accounts like checking and savings accounts are acceptable. However, assets such as certificates of deposit or mutual funds in retirement accounts will not count as available funds.

Also, remember that a pre-approval letter is not proof of funds. A mortgage pre-approval is a lender's commitment to providing a buyer with a home loan. Proof of funds letter is a separate document that shows where you keep the money you need for a transaction.

Sell Your Home Confidently

Proof of funds letter is a crucial component of the house selling process. It should help the seller feel safe and confident when it comes to closing the deal with a buyer.

If you don't want any surprises like prolonged transactions, or any complications with the process, you should demand the proof of funds letter before closing the deal.

Although proof of funds does offer many benefits regarding real estate transactions, it won't accelerate the home selling process much. That's where we come in. If you want to sell your home fast and for top dollar, get in touch with SleeveUp Homes and request a no-obligation cash offer, and see how much you can get for your property. We'll buy your house as is, so you can rest assured no hidden encumbrances related to home sales await you down the road.



If you want to sell fast and are worried about how long the traditional process takes, and the commission and fees involved, consider working with SleeveUp Homes.