{"id":2093,"date":"2022-02-16T15:21:40","date_gmt":"2022-02-16T15:21:40","guid":{"rendered":"https:\/\/www.khov.com\/blog\/?p=2093"},"modified":"2022-02-16T15:21:43","modified_gmt":"2022-02-16T15:21:43","slug":"what-is-proof-of-funds-real-estate","status":"publish","type":"post","link":"https:\/\/blog.khov.com\/blog\/what-is-proof-of-funds-real-estate\/","title":{"rendered":"What is Proof of Funds in Real Estate?"},"content":{"rendered":"\n

In the acronym wonderland of the homebuying process, one of the items that aspiring homebuyers will find themselves being asked for is a POF, or proof of funds letter. The POF is a document, provided by a bank or other financial institution, which proves that the buyer has the funds required to cover their share of a given transaction, like the purchase of a home.<\/p>\n\n\n\n

For those buyers or investors making an all-cash offer with no contribution from a lender, their share of that transaction is 100%, which makes the POF particularly important. Short of the proverbial briefcase full of cash, the seller has no guarantee that the buyer actually has the funds they say they have, unless they have a document to prove it; many sellers won\u2019t accept a cash offer without a POF.<\/p>\n\n\n\n

Of course, homebuyers who intend to use a mortgage loan aren\u2019t putting up all of the money, so the proof of funds letter only needs to cover the amount that the buyer is personally contributing: typically the down payment (ideally 20% of the home price) and the closing costs (usually 3%-4%).<\/p>\n\n\n\n

Most sellers won\u2019t take the home off the market before confirming that the buyer has these funds ready to go.<\/p>\n\n\n\n

Why is the POF Necessary?<\/strong><\/h2>\n\n\n\n

As nice as it would be, most sellers and lenders aren\u2019t willing to take your word for it when you tell them what you can afford. It\u2019s easy to say that you can buy a home in a certain price range, but unless the seller knows you personally or is very trusting, they will likely need some proof.  In the extremely competitive housing market, the POF is one of the best tools they have to sift through offers and determine which have the highest likelihood of leading to a sale.<\/p>\n\n\n\n

While some buyers who are dealing with homeowners directly may not be asked for a POF, most will need to provide one by the time they make an offer; many sellers prefer the POF and the offer to come in together, so they can evaluate the plausibility of the offer right away. In some cases, the buyer may make an offer without a POF, but they\u2019ll typically be asked to follow up with one within a day or two.<\/p>\n\n\n\n

Realtors may also ask their clients for a POF well before they reach the offer stage, as a kind of pre-screening; knowing what a client can afford will help a realtor decide which homes to show to whom, and will help them approach sellers with more confidence in their clients.<\/p>\n\n\n\n

Types of Funds in a POF<\/strong><\/h2>\n\n\n\n

The \u201cfunds\u201d in proof of funds can take different forms, but the most important thing is that they generally need to be liquid capital \u2013 or in other words, funds that the buyer can access and use at any time. The most common example is cash, as it can easily be transferred and doesn\u2019t change in value.<\/p>\n\n\n\n

But some other forms may be considered as well, such as:<\/p>\n\n\n\n