What is Proof of Funds? POF Letter: What It is And Why You Need It

A Proof of Funds letter is part of the documentation required of home buyers throughout the home buying process. Learn what it is, what’s included in, and how to provide it.

So, you think the mortgage process is complex? It is, but it really isn’t. The terminology associated with buying a home can often sound more complex than it really is, especially if you’re new to the mortgage process. Whether you’re an experienced homebuyer or just beginning to explore the possibility of your first home purchase, understanding the documentation that could be required of you throughout the process is essential for a smoother, surprise-free path to closing day.

What Does it Mean to Provide Proof of Funds?

When you first meet with a lender to get pre-qualified or pre-approved for a loan amount, you’re typically asked questions about your finances and/or required to provide documents (like tax returns or bank statements). This is so that the lender can verify your ability to repay the loan and get you approved for a mortgage for your home purchase. Now, let’s get into what proof of funds in real estate means:

Instead of a lender requesting information to verify that you have the finances to afford the mortgage, home sellers request proof of funds (POF), or a POF letter, to ensure that you, the homebuyer, have the finances for a smooth transaction.

What is a POF Letter?

On top of requesting a pre-qualification or pre-approval letter, sellers can ask for a POF letter to ensure you have the funds for the sale to go through. If your lender doesn’t require an official POF for your mortgage approval, know that a seller may still want to see one. The POF letter is proof to the seller that you have the funds (including the down payment and closing costs) to afford the home.

Who Needs a POF Letter?

Whether you’re an all-cash buyer, a buyer with a 20% down payment, or a buyer with a 3% down payment and seller-paid closing costs, the bottom line is that anyone buying a home should be prepared to provide POF.

When to Provide POF

There’s not a specific day outlined in the home buying process that marks when the POF letter is submitted to the seller. Typically, homebuyers submit the POF along with the home offer (or within a couple of days after the seller accepts the offer).

What Does a POF Letter Include?

A POF letter typically comes from your bank or other financial institution as an official verification to the seller of your available and current balance. A POF comes in many forms, but the most widely accepted are:

1. A signed document from a bank official; or
2. A bank statement with the money being used for the home purchase.

How to Provide POF

The first step is requesting a POF from your bank and/or financial institution. It’s important to note that since the information on a POF letter contains personal information, ensure it’s secure and only submitted to the seller. Once you submit a request, a 1–2-day turnaround can be expected. Delays may ensue if your funds are split between different accounts, so making sure funds needed for the home sale are all in one place prior to the request could save you time later.

Now that you know more about proof of funds, you’re likely realizing that the mortgage industry jargon can sound more complicated than it actually is – sometimes a breakdown is all you need to gain the home buying confidence you deserve!

What's Next?

If you haven’t already, get pre-approved today to learn how much home you can afford and give sellers the peace of mind they need to know that you’re already a lender-approved buyer!