Last Updated on July 12, 2021
The Beginner’s Guide to Proof of Funds Letters
Whether you’re thinking about buying an investment property, or just curious about what the process of buying an investment property includes, one of the first things you need to know about is the importance of a proof of funds letter in real estate. A proof of funds letter for real estate purchase is an important document to have and will help you be prepared to begin investing in real estate. Since we offer Proof of Funds Letters here at Hard Money Lenders, we’ve prepared this helpful guide to navigate the uncertainties surrounding your proof of funds letter.
What is a proof of funds letter?
Put simply, proof of funds letters are essentially what they sound like – a letter proving that you actually have the necessary funds to buy an investment property. A proof of funds letter in real estate will show sellers that you can follow through on an offer. This letter is typically provided by a bank, hard money lender, or some other third-party company like Hard Money Lenders that will confirm and verify your funds. If you’re looking to fix and flip a property or renovate and rent a property, you’ll want to provide proof of funds.
Why does a proof of funds letter matter?
A proof of funds letter gives you more credibility as a potential buyer. It shows sellers that your offer is serious and that they can trust you to pay the amount you say you will. Buying an investment property is a huge commitment financially, and a proof of funds letter for real estate purchases can go a long way towards showing a seller that you are ready and able to make that commitment. As stated in this article, proof of funds is a great way for sellers and property owners to make sure that they are not wasting time on unrealistic offers. Proof of funds letters are often a sign of trust that can help you build a positive relationship with a seller. Providing a proof of funds letter shows that you are prepared and reliable.
Do I need a proof of funds letter?
While some real estate agents will give potential buyers a short window of time to provide proof of funds, most prefer to have a proof of funds letter before they will even consider the offer. If you need a proof of funds letter quickly, we provide instant proof of funds letters through an application here. There are a few circumstances where proof of funds may not be needed, such as if you are interested in buying from a homeowner that does not have a real estate agent, but most buyers will need a proof of funds letter for real estate purchases.
What kind of proof of funds letter should I get?
There are two best kinds of proof of funds letters for real estate, depending on how you plan to purchase the property. If you plan to use your own cash, you can use a bank statement to provide proof of funds. However, if you are working with a hard money lender instead of buying the property with your own cash, you should get a proof of funds letter directly from the hard money lender. Both these options are valid and dependable. Some online companies offer proof of funds letters for real estate, but sellers typically do not like this form of proof of funds, as they seem unreliable and could potentially be a scam. Therefore, we recommend you stay away from companies online when it comes to untrustworthy sources and obtain proof of funds letters from a bank or hard money lender like us instead.
Is a proof of funds letter the same as a pre-approval letter?
A pre-approval letter is very different from a proof of funds letter in real estate. While both can be important documents, they each do different things in the process of buying an investment property. A proof of funds letter shows that a bank or lender already has the cash needed to purchase a property successfully. This typically marks the beginning of the underwriting and appraisal processes, but is not a legal commitment or agreement between any parties. A pre-approval letter, on the other hand, is a legal commitment between a lender and a borrower. This letter says that a potential borrower has the necessary qualifications to receive a loan from the lender, though that loan may not be ready or available yet. If you want to learn more about pre-approval letters, you can visit this article here.
How do I get a proof of funds letter?
If you have the funds in your personal bank account to make the purchase, you can go to your bank and ask for a statement or a proof of funds letter. When giving a seller your bank statement, be careful to remove personal information such as your account numbers, while still leaving in the information needed to show that the account is owned by you.
If you are using a hard money letter, the lender should be able to give you a proof of funds letter. Use their email, phone number, or website to contact the lender. They will most likely ask you to provide information such as the name of the person or entity making the purchase, the address and purchase price of the property, and your contact information. At Hard Money Lenders, this is the exact process we use when issuing proof of funds letters.
What mistakes should I watch out for in my proof of funds letter?
The most important aspect of a proof of funds letter is simply to have one when you decide to make an offer on a property. Having a proof of funds letter in real estate helps demonstrate your commitment and trustworthiness to the seller. Having a proof of funds letter on-hand prevents any slow-downs during the offer process; this is especially essential during today’s hot real estate market, especially in Florida. You can get a proof of funds letter from the bank or a lender quickly and easily, so make sure you provide proof of funds with your offers.
Beyond having a proof of funds letter, one mistake that buyers often make is trying to pretend that they are using their own cash to buy a property when they are actually using cash from a hard money lender. Although cash deals are known to close the fastest, hard money loans close nearly as quickly, as they have minimal regulations and are flexible. Being dishonest about your proof of funds is never a good idea, and there is no need to hide the fact that you are using a hard money lender as long as they’re a reputable one such as Hard Money Lenders. Make sure your proof of funds letter is accurate and honest about where the funds are coming from in order to build your credibility as a potential buyer.
Proof of funds letters are an important real estate document to have before putting in an offer on any property. If done correctly, a proof of funds letter will show your commitment and trustworthiness as a buyer and ensure the seller gives your offer the consideration it deserves. If you need help with your proof of funds letter, contact Hard Money Lenders.
Adam Smith has spent the last 5 years in the Private Money Lending world helping real estate investors secure financing for their non-owner occupied real estate investments. When he’s not thinking about real estate, Adam is an avid Jazz music fan and fisherman.