Learn more about providing proof of funds and what it should look like.
What Is a Proof of Funds Letter?
A proof of funds letter provides evidence that a homebuyer has the money for a down payment and closing costs. Any proof of funds needs to list the following items, preferably on official letterhead from the institution where the funds reside:
The dateThe name of account holderThe balance of funds on deposit
The buyer will need to produce a document. The document can sometimes be verified by a loan officer. More often than not, the seller and the seller’s agent will want to see the actual document. Here are a few sample types of documentation:
An original bank statement An online banking statement An open equity line of credit A copy of a money market account balance A certified financial statement
Depending on how the buyer saves their money, it may be hard to provide proof of funds. If they prefer to stuff their mattress with cash, for example, that wouldn’t transfer very well into a proof of funds letter. Depositing that cash into the bank might be a problem, too. Federal law requires banks to report cash deposits over $10,000 to the government.
Why Do Buyers Need Proof of Funds?
Sellers often demand proof of funds because a listing agent has most likely advised them to keep theie home on the market until the agent receives proof of funds from the buyer. When a buyer provides proof of funds to the seller, it gives the seller peace of mind to know that the buyer can financially hold up their end of the deal. In that case, the seller is more likely to hold the home for the buyer while the transaction finishes processing.
What Is a Cash Buyer?
Simply put, a cash buyer is a person or entity who has cash on hand to close. There is no loan involved and no mortgage—just cash. Many buyers may consider themselves to be cash buyers, but they actually are not. People in the following situations are not considered cash buyers:
In the process of selling stocks or mutual funds Holding a certificate of deposit that has not yet matured Borrowing money from a relative Refinancing a personal residence to raise the cash Waiting for a probate court to distribute assets Borrowing against securities Liquidating funds from a retirement account Obtaining a mortgage secured to the property they are buying
In other words, if the money is not liquid and readily available, then the buyer is not a cash buyer. They are making an offer that is contingent on another set of circumstances happening. Sometimes, buyers who are obtaining hard-money loans present offers as cash when they are not cash. That kind of behavior is considered deceptive at a minimum and may even violate contract law.
