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What Is Proof of Funds (POF)?

When purchasing a home, the seller’s real estate agent may ask for a proof of funds letter to show that sufficient money is available for the purchase.

This can come in the form of an official letter from the bank or a financial statement showcasing the available funds. Other forms of assets such as stocks, bonds, or other investments may not qualify.

How Is It Used in Real Estate?

The term proof of funds is commonly used between real estate agents when they are discussing a potential buyer and their qualifications for a property purchase.

It is also used often when dealing with a lender or financial institution that is involved in the home buying or selling process.

Your listing agent will make sure the buyers are qualified and present their POF, so you can relax during the process.

Example

Jennifer is looking to buy her second property. She is looking to upsize to a larger home as she and her husband plan to start a family.

Since Jennifer knows that a seller may request to verify their ability to purchase a home, she decides to go to her bank after being pre-approved for a mortgage. She asks for a proof of funds letter.

Her financial institution provides an official letter stating that cash funds are available for the purchase of a home within their expected budget.

Jennifer and her husband begin searching for homes with confidence now that they can provide a real estate agent with the documents they need to seal the deal.

Frequently Asked Questions

Is a POF letter different than a mortgage pre-approval letter?

Yes. The proof of funds letter is designed to show that the buyer has the funds to not only purchase the property but also fund the final costs associated with the home purchase. This gives the seller confidence that you can see the deal through to the end.

The mortgage pre-approval letter is used to let the seller know you can afford the home and it’s in your budget. This letter only gives the seller partial confidence that the deal could close as this letter is not official proof that the liquid cash is available for closing.

What should the letter include?

As previously mentioned, this could be a basic bank statement or the seller’s agent may want something more detailed. It should have the following information:

  • Current date
  • Bank name and address
  • Name of the account owners and beneficiaries
  • Total funds in the account(s)
  • Signature of an authorized bank employee verifying the balance(s)
  • Date of how long the funds have been in the account