Providing Proof of Funds for a Mortgage

Proof of funds

Buying a home is an exciting prospect. It can represent a big step in your finances and a new chapter for your life. Although the home buying process is worth the effort, you’ll need to be prepared to provide proof of funds along with several other documents.

Today we will take a closer look at the process of providing proof of funds.

What does it mean to provide proof of funds?

You might know that you have the funds on hand, but a seller cannot simply trust your word. Unfortunately, a seller needs to verify that you have the funds available.

Although a preapproval letter can be helpful, sellers will usually also ask for proof of funds. The goal of the proof of funds is to ensure that the buyer has the means to cover the down payment and any closing costs associated with the loan.

If you have the funds available, then providing proof of funds is not a significant inconvenience. You’ll simply need to show that you have the funds ready to spend on the upfront costs of your home purchase. If the funds are coming in the form of financial assistance from family members or close friends, you'll also need to provide a gift letter.

Documentation of your funds needs to be provided upfront in order to move forward with most home purchases.

Why do sellers ask for proof of funds?

The home buying process is time-consuming and full of paperwork. When a seller chooses to accept a buyer’s offer and put the home under contract, it is just the beginning of the process. After that, it can take several weeks of paperwork before the sale is finalized.

With that, it is obvious that a lot of time and effort is put into a home sale. The buyer and the seller will both be required to fill out dozens of documents throughout the process. The lengthy paperwork process required means that the seller will invest a lot of time and energy after accepting your offer. That’s why they want to make sure that you have the funds available before you start the process.

Otherwise, they could pass up another offer with a buyer with the funds ready to go. That would likely delay the sale of the home and add to the headaches for the seller. It is understandable why the seller wants to see proof of funds before starting the process. Luckily, it is not a major inconvenience to obtain your proof of funds.

What type of funds are acceptable?

When you are buying a home, there are two main options for financing. You could either buy the house in cash outright or make a down payment to secure a mortgage.

The funds that are acceptable for each type of purchase varies. Let’s take a closer look below.

Cash buyer

A cash buyer is a person or business that is ready to close with cash they have on hand. The buyer is not looking to take out a mortgage to obtain the property. Instead, they plan to make the entire purchase with the funds they have available.

In order to be a cash buyer, you’ll need to have the money readily available in a liquid way. That means that the funds should be available in an easily accessible account, such as your checking or savings account. If the funds are not readily available, then you aren’t truly a cash buyer.

A few examples of buyers who are not technically cash buyers include those in the process of selling off mutual funds, borrowing money from a family member, liquidating funds in an investment account, or waiting for a probate court to distribute them.

Although these examples show that the funds are en route to the buyer, the funds are not readily available at the time of the offer. With that, it is important to disclose your funding source to the seller in the form of a proof of funds letter.

Down payment with financing buyer

If you aren’t a cash buyer, that doesn’t mean you don’t have to provide proof of funds. In fact, you’ll still be responsible for a down payment and other closing costs that could easily add up to thousands of dollars. With that, it is still essential to the seller that you can provide proof of funds.

The funds you plan to use for the down payment and closing costs should be easily accessible. Bank accounts with sufficient cash are what the seller is looking for. Although you might have physical cash readily available, it can be difficult to prove how much money you have stashed in a coffee can. With that, sellers are looking for funding documentation from a checking or savings account.

Example of proof of funds letter

When you are providing a proof of funds letter to a seller, you’ll need to include a range of information. Simply stating that you have the funds available is not enough. The seller is not able to take any potential buyers at their word, so the proof of funds letter makes things flow more smoothly for everyone.

When you are drafting a proof of funds letter, it must include the following:

  • The bank’s name and address
  • An official bank statement
  • A copy of the account and the current balance
  • A balance of funds in all accounts held with that banking institution
  • A bank certified financial statement
  • A copy of your online banking statement
  • The signature of an authorized bank employee

If you are also working to obtain a mortgage, then you’ll find that the financial fact-checking process is very similar. In some cases, the loan officer for your mortgage will be able to vouch for your financial situation to the seller and the seller’s real estate agent.

However, it is not unlikely that the seller will request their own copy of a proof of funds letter. You shouldn’t have any trouble verifying your funds a second time for the seller if you’ve already talked to a loan officer.

Proof of funds letter template

Here’s a closer look at an example proof of funds letter.

[Bank name and address]

To the seller and seller’s agent:

We can confirm that, [your name here], has [x amount] of funds available as of [date]. We also confirm that these funds are free and clear of any debts or liens. Additionally, we can confirm that these funds are from a non-criminal origin. If you require further verification of the funds listed above, then please contact us. 

Best, [Your signature]

[Bank representative signature]

Contact information: [phone number and email]

As you can see, these letters are very straight to the point. Depending on the number of accounts you have held at the particular bank, you might need to expand slightly to provide all of the details required about the funds. You won’t find any wasted words in these very black and white letters. The point is to state whether or not you have the funds.

To get a proof of funds letter, contact a bank representative to help you. They are comfortable with drafting these letters, so you can simply request their help.

The bottom line

Overall, the home buying process can be a happy time. But you should be prepared for an extensive amount of paperwork. Although you might be able to skirt the vast majority of paperwork by choosing to be an all-cash buyer, you’ll still need to provide proof of funds.

As you navigate the home buying process, please take advantage of our resources. We can help you walk through the ups and downs of buying your first home!

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