What is a mortgage proof of funds letter?

What is a mortgage proof of funds (POF) letter?

A proof of funds letter is a document providing evidence that you have enough liquid assets, or cash, to buy a home with a mortgage. You’ll need this paperwork to demonstrate to the lender and seller you can afford to purchase the home, including paying for the down payment and closing costs.

Likewise, if paying for the home in cash, you’ll need to provide proof of having access to enough money to cover the full cost of the home. Most sellers won’t take the home off the market before confirming the buyer has these funds set aside.

Why homebuyers need a proof of funds letter

The purpose of proof of funds for real estate is to prove that your offer to purchase a home is legitimate. Without a proof of funds letter, your offer might not even warrant consideration.

A proof of funds letter might also give you an advantage when making an offer on a home if you’re in a multiple-bid situation. If you can show you’re prepared with the funds (either for a down payment and closing costs or an all-cash deal), you might stand out over another buyer with fewer assets.

It might not be necessary to provide proof of funds if the home is for sale by owner and the seller isn’t working with a real estate agent, however. This scenario is the exception, not the rule.

What types of funds qualify?

You can use many different types of funds to qualify for a mortgage, including:

• Money in checking and savings accounts
• Money from investment or retirement accounts (provided they are liquidated)
• Gift funds or grants
• Money from a bridge loan
• Money from a pending sale

Regardless of where you source from, the funds need to be liquid. That means assets like mutual funds or life insurance, while they have value, might not qualify if they aren’t sufficiently liquidated.

Preapproval letter vs. proof of funds letter

A preapproval letter and a proof of funds letter are two separate documents, but they’re both important when buying a house. Before you can get a mortgage, you will need a mortgage preapproval letter. This is a document from a mortgage lender showing a proposed loan amount for a given borrower. While a preapproval letter isn’t a firm confirmation you have financing, it’s another necessary document to provide when making offers on homes.

Once you find a home that you like and want to put an offer on, you will need to present the proof of funds letter to your lender and the seller — which you can request from your bank. This letter verifies that you have enough liquid funds to buy the home. Without a proof of funds letter, your offer may not be as competitive, and depending on the situation, the seller might not consider your offer at all.

Proof of funds letter example

Your bank can provide a proof of funds letter, or you can find proof of funds example letters like the one below:

How to get a proof of funds letter

While a simple bank statement often suffices as proof of funds, you might need to provide more context with an official letter from your bank. Sometimes, the lender has the borrower fill out a request form that is then forwarded to the bank. In other cases, you might need to request one yourself. Here’s how:

1. Put your money in one account: If you’re using funds from multiple accounts or pulling from an investment account, consider moving them all to a single checking or savings account. If going this route, try to move all of the money at least two months’ ahead of getting preapproved for a mortgage and making offers on homes. This gives the funds time to “season.” Keep careful records, too: Your lender will want to see statements showing when the funds moved from one account to another.
2. Submit a request to the bank: Depending on your bank, this process might be referred to as a “verification.” You typically have to make this request in person at a branch location or through a special form online. The bank often gets a document to you within a few days, and usually no more than one week.
3. Provide the letter to the seller: As soon as you receive the proof of funds letter, pass copies along to your lender and the seller. As with all of your mortgage documents, keep another copy of the letter in a safe spot.

Proof of funds letter FAQ

• Is a proof of funds letter the same as a bank statement?

  No. The seller might accept a bank statement as proof of funds, but if they want an official letter, you’ll need to get a separate document from your bank. You’ll still need copies of bank statements when you apply for a mortgage, however. These help the lender understand your income and past financial activity.
  

• What other documents could show proof of funds?

  Depending on the situation, you could provide a bank statement, custody statement or investment account statement to show proof of funds. A proof of funds document must be issued by your bank or financial institution.
  

• How long is a proof of funds letter good for?

  A proof of funds letter doesn’t necessarily expire, but it’ll need to be dated and accurately reflect the funds in your account within the time frame you plan to buy a home.
  

• Can I provide a proof of funds letter that includes funds from multiple sources?

  You can use funds from multiple sources to buy a home, but you’ll need separate letters from each institution to prove the balances exist.