Proof of funds is a document you provide to confirm that you have the necessary funds to cover specific expenses. Proof of funds can come from various sources, including bank statements or a proof of funds letter. There are some situations where you may be asked to provide proof of funds, but this is most common in real estate transactions.
Definition and Examples of Proof of Funds
Proof of funds is simply the verification you provide to show that you have the money needed to complete the transaction. For example, in real estate, the seller may require you to provide proof of funds to show that you can cover the costs of purchasing a home.
Proof of funds can be requested whether you choose to obtain a mortgage or buy the property in cash; in either case, the seller and lender will want to know if you are able to finance the transaction.
There are more than one way you can demonstrate proof of funds. In some cases, your bank statements can qualify. However, you should be aware that they contain a lot of information; if you choose to use them, you must ensure your personal information is protected.
How Proof of Funds Works
Let’s say you are looking to sell the home you bought five years ago. It’s a nice home, but your family has grown, and you’ve decided it’s time to expand the space. After finishing up the house – with new paint and kitchen arrangements – the real estate agent holds the first open house. The market is hot, which means a lot of people are coming through. Within a week, you receive six offers.
You will need to choose the offer you want to accept. While this is a great problem to have, it is certainly a problem you must tackle. Do you want to sell to the family looking for a starter home? What about the investor who wants to scrape the house and rebuild?
Requesting proof of funds from all buyers – especially those who wish to pay cash – can help you make your decision.
What Does Proof of Funds Mean for You?
If you are selling a home, a proof of funds letter can confirm that the buyer is serious and that their offer is valid.
If you are buying a home, you may be asked to provide proof of funds to verify your ability to complete the deal. Along with new money and the ability to waive any contingencies in your offer, you can use proof of funds to enhance your chances of competing in a hot market.
Key Points:
– A proof of funds letter verifies the liquid assets necessary to complete the transaction.
– In a real estate transaction, the seller may request a proof of funds letter to show that you can afford closing costs and the down payment.
– As a real estate seller, you may ask potential buyers to provide proof of funds to show they are capable of completing the purchase.
– There are multiple ways to obtain proof of funds, including bank statements and opening lines of credit related to real estate.
Source: https://www.thebalancemoney.com/what-is-proof-of-funds-5222668
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