Proof of Funds in Real Estate & What You Should Look For

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From an A+ BBB rated business.

When dealing with cash house buyers, sellers may overlook the need to make sure the person that is offering to buy their home has the funds available to do so. If they didn’t have the money, why else would someone take the time to make an offer on a home?

Unfortunately, there are a lot of scam artists out there. So, it’s important to request Proof of Funds (also sometimes called Verification of Funds) from anyone making an offer to buy your home in cash. But, producing a proof of funds letter alone doesn’t necessarily make it legitimate.

What does “proof of funds” mean?

The quick answer is that it is some proof provided by the potential buyer to the seller showing that they have access to the funds required to close on your home. This proof might be a bank statement or letter from a private or hard money lender stating their willingness to loan money in cash to the buyer for them to purchase the home.

So what should you look for in a proof of funds letter?

A proof of funds letter should contain several vital pieces of information, including how much funds are available to the buyer and where those funds are coming from. It should also include the name of the private lender, hard money lender, or banking officer stating the funds are available.

It should also contain the name of the contact person in charge of approving the use of the funds (if applicable), their phone number, their email address, and their mailing address. If the funds are coming from the individual buyer’s bank account and not an outside funding source, contact information for a banking officer who can verify the data should be included.

The letter should also have a date on it. This way, you’ll know that any promise to provide funds was recently offered or that any bank account balances cited are accurate.

Is a bank statement an acceptable form of proof of funds?

The short answer is yes – but with some caveats. Remember that these days, almost anything can be doctored using photoshop. Be sure the statement contains all pertinent information, such as the bank’s name, the account holder, their account number, and the current balance. You should also take note of the date on the statement to make sure it’s recent.

And no matter how legitimate a bank statement looks, it should still be verified with a banking officer at the financial institution the statement is from.

Potential red flags to look for in proof of funds letters from private lenders

Anyone can type up a letter in Word claiming to have the funds available to purchase the home. But there are a few things you should look for when attempting to evaluate the letter’s legitimacy.

For letters coming from private lenders (individuals who loan money to others vs. standard mortgage lenders), there may be reason to be suspicious if the letter looks amateurish. Spelling and grammatical errors are another potential red flag to pay attention to. Letters lacking any way to contact the person or company claiming to be providing the funds are also a sign that something may not be right.

Always verify the information contained in any form of proof of funds

No matter what type of proof of funds you’re provided, you should always verify the information contained within it independently. Legitimate cash buyers will welcome sellers to verify the legitimacy of their funds.

If proof of funds is presented as a letter, contact the author of the letter and ask them to verify the information they provided and ask any questions you may have. If proof of funds is presented via a bank statement, ask the buyer who you can contact at their bank to verify the statement is authentic.

If your buyer has any excuse for why they wouldn’t want you verifying any of the information provided, you should be highly wary of moving forward with the sale.

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