For you to understand why and when you need a letter of proof of funds, you need to know its meaning.
A POF letter is a document that highlights that a buyer has enough funds (cash) to buy a home.
Whether you are an individual, an institution, or a company, a seller will only take the house off the market if you show evidence of enough funds to buy the home. This letter is mainly requested when a buyer is dealing with cash; hence, the seller can confirm enough funds for a down payment and closing the deal. It provides a guarantee that the buyer is willing to make and commit to the deal of buying a home.
It is also needed when the home you want has received other offers from several prospective buyers. When you have this letter, it helps to show that your offer is legitimate. It also helps to raise your offer to the top of the list.
You must understand that this letter is different from a mortgage pre-approval letter. While it shows the buyer’s commitment to buy a home, the mortgage pre-approval letter is a document from a lender that shows they are willing to loan the buyer what they owe on the mortgage. Although the two letters are different, as a buyer, you must provide both of them to a seller before you can buy a home.
Free Templates & Examples
Requirements of a POF Letter
In real estate, several items must appear on the letter for it to be legit and usable. These items are mentioned in it for validity purposes.
In other words, these items are what make up your letter:
Bank’s name and address
The bank must verify that the buyer has the funds that they claim to have. The bank will have to mention that you truly have an account with them and state the funds present.
Official bank statement
An official bank statement can either be printed or found online. It shows the transactions that you make through your bank of choice, that is, deposits and withdrawals.
Online banking statement copy
This is a copy of a bank statement that the account holder can download. It shows the account activity. Your bank account activities include wire transfers, cash withdrawals, payments of bills, and many more.
To verify that the letter is legit, it must include the title and signature of an authorized bank employee.
Bank-certified financial statement
A bank-certified financial statement helps with confirmation of your business activities via your established bank account in terms of taxes, finances, and investments. This information makes it easier for someone to trust your fund’s source and maybe even agree to sign the deal.
Money market statement and balance
This copy highlights any amount of cash that comes from the money market and will be used for the transaction. A money market statement and balances display all the interest gathered and, hence, the total funds raised.
Balance of funds
It requires information on the balance of funds in the checking and savings accounts. This is because the cash needed for the transaction can also come from a checking or savings account. The main focus is that it should be easy to withdraw and should not be in the form of debt.
Bank paper
It should be printed on official bank paper. Furthermore, it should have the bank’s letterhead and an official signature at the bottom, as explained above.
Information to be added
The last and most important thing is that the letter should have the account holder’s name (you) and your current balance.
Proof of Funds Letter Template
[Issuer’s Letterhead or Company Logo]
[Date]
[Recipient’s Name]
[Recipient’s Address]
[City, State, Zip Code]
Subject: Proof of Funds Letter
Dear [Recipient’s Name],
I/We are writing on behalf of [Buyer’s Full Name], with respect to their upcoming real estate transaction. As [Issuer’s Title/Position] of [Issuer’s Institution/Company Name], I/we have reviewed the financial documents and account details necessary to verify the availability of funds for this transaction.
Please find below the details regarding the financial capability of [Buyer’s Full Name]:
- Account Holder’s Name: [Buyer’s Full Name]
- Account Number: [Last four digits for security]
- Financial Institution: [Name of the Bank/Investment Firm]
- Account Type: [Checking/Savings/Investment]
- Current Available Balance: [Amount in USD or relevant currency]
- Date of Statement: [Most recent date of account statement]
This letter serves as a confirmation that [Buyer’s Full Name] possesses sufficient funds and is financially capable of completing the proposed real estate transaction. Please note, this letter is provided without any liability on the part of [Issuer’s Institution/Company Name] and is for informational purposes only.
Should you require any additional information or have further inquiries, please do not hesitate to contact me/us at [Issuer’s Contact Information].
Thank you for your attention to this matter. We look forward to the successful completion of this transaction.
Sincerely,
[Issuer’s Signature]
[Issuer’s Name]
[Issuer’s Title/Position]
[Issuer’s Institution/Company Name]
[Issuer’s Contact Information]
Sample POF Letter
Subject: Proof of Funds Letter for Jane Smith
Dear Mr. Doe,
I am writing to you in my capacity as the Branch Manager of First National Bank of Exampletown, on behalf of our esteemed client, Ms. Jane Smith. This letter is to confirm that Ms. Smith has the necessary funds available for her intended real estate purchase, as per your requirements for the transaction process.
Please find the pertinent details regarding Ms. Smith’s financial standing with our institution below:
- Account Holder’s Name: Jane Smith
- Account Number: ****5678
- Financial Institution: First National Bank of Exampletown
- Account Type: Savings Account
- Current Available Balance: $350,000 USD
- Date of Statement: March 5, 20XX
This letter is to affirm that Ms. Jane Smith possesses sufficient financial resources in her account with us to successfully complete her proposed real estate acquisition. It is important to note that this confirmation is provided without prejudice and solely for the purpose of this transaction, carrying no further liabilities on the part of First National Bank of Exampletown or its representatives.
Should there be any need for additional information or further clarification, please feel free to contact me directly at (123) 456-7890 or via email at service@fnbe.com.
We appreciate your cooperation and look forward to facilitating the smooth progression of this real estate transaction for Ms. Smith.
Yours sincerely,
[Signature]
James Anderson
Branch Manager
First National Bank of Exampletown
Phone: (123) 456-7890
Email: service@fnbe.com
Analysis
This proof of funds letter is effective due to its clarity, conciseness, and provision of essential information required for a real estate purchase. The letter begins with a clear statement of intent, immediately informing the recipient of its purpose. The inclusion of specific details about the client’s account, such as the account type, number (partially redacted for privacy), and the current available balance, lends credibility and substantiates the claim of financial capability. The statement’s date ensures the information is current, which is crucial for real estate transactions that depend on timely and accurate financial data.
The letter also maintains a professional tone throughout, reinforcing the seriousness and reliability of the information provided. By stating that the letter is issued without prejudice and specifies its sole purpose for the real estate transaction, it carefully manages liability and sets clear boundaries for the use of the provided information.
The closing offers direct contact information, demonstrating openness for further communication and a willingness to assist, thereby facilitating the transaction process. The letter’s effectiveness is rooted in its ability to meet the recipient’s needs for verification while ensuring the client’s financial privacy and the bank’s limited liability.
Information about the POF Letter
You should have the letter prepared and ready even before you spot your dream home. This will make it easier for you since you will not have to struggle to prepare one when you want to make an offer.
You can send it to the seller on the day you make an offer on a home. Also, you can submit it within 48 hours after making an offer.
Always remember; if you have investments that are not liquid, that is, cash or mutual funds, these funds won’t count as evidence in the POF letter.
If you wish to use some of your non-liquid investments in your funds, then sell the investments you need and transfer the cash to your bank account.
It might sound hectic and complex to grasp the idea behind having this letter when you just want to purchase your dream house. Well, let’s break down for you the reasons and instances for requiring this letter.
It is needed in the following circumstances:
- It is needed when homeowners are selling their houses to ensure the buyer’s legitimacy and commitment.
- Real estate agents working on behalf of sellers also need it from buyers before they can take the property off the market.
- Buyers who choose to pay in cash need to have this letter to show that the funds are available and are not a loan.
- Anyone selling a business will require the buyer to hold the business for them until the transaction is complete.
Now, the question is, how can I get it? Do not be worried! Although it sounds complex, getting this letter is not difficult. You can get it by requesting one from a financial institution or bank that holds your money. Ensure that the money you need is not in someone else’s account or the form of assets.
With that in check, your bank can get back to you with the letter within 2 days.
Frequently Asked Questions
A pre-approval letter is a document from a lender that shows they are willing to loan a buyer the remaining amount that he/she owes on their mortgage.
However, a letter of proof of funds is a document that establishes and provides evidence that a buyer has enough funds to buy a home.
No, it does not count as a POF letter. However, a pre-approval letter is needed together with the letter before the sale of a home can occur.
Conclusion
Many of us get hindered from realizing our dreams since we lack knowledge on how to go about it. When it comes to real estate, without proper knowledge of the requirements, you might never get the chance to buy a home, let alone own land or property. This is why you should learn more about a letter of proof of funds.
This document is essential if you want the seller to consider you for the offer you have made about buying a home. Ensure you have all the requirements for an official POF letter, as it will make it easier for you to purchase that dream home. Check out our list of requirements for an official POF letter. Better yet, download and use our free letter templates to make the process easier.
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