Proof of funds in real estate: Definition and benefits

In a competitive market, sellers need a guarantee that you can cover purchase expenses, like the down payment and closing costs, so they aren’t stuck in a delayed transaction. If you don’t have documentation to prove you have the funds, they’ll likely choose a buyer who does.

Proof of funds letters show you have money set aside and ready to use. They give sellers confidence in the process, removing hesitation and helping the deal move ahead smoothly.

Discover what proof of funds in real estate means and why it matters. Plus, learn how to get your own letter to strengthen your offer and stand out from the crowd.

What’s a proof of funds in real estate?

A proof of funds (POF) letter is a document that shows you have the available money to complete a real estate purchase. It guarantees your funds are readily accessible, not tied up in retirement accounts or stocks. Generally, it proves you can cover a down payment and closing costs, but it can also confirm you have enough cash to cover the full purchase price.

An official verification of funds usually comes from a bank or another financial institution, although some sellers and lenders accept bank statements in their place.

Pre-approval letter vs. proof of funds letter

While both of these letters improve your offer and show sellers you’re a serious buyer, they’re used at different stages of home buying. A mortgage pre-approval letter shows a lender is willing to provide you a loan. It reassures sellers you’re a capable buyer and lists a potential loan amount based on your income, credit, and debts. 

A POF verifies you have the funds to cover expenses during closing. Even if a borrower can secure a loan, they aren’t guaranteed to have the money to finish the deal. Ideally, buyers should have both of these letters during the home buying process. Together, these documents make you look prepared, serious, and ready to close.

Why do you need proof of funds?

For average transactions, POF letters provide transparency and minimize risk, but there are situations where they’re necessary. Here are the main situations to use a POF: 

— All-cash transactions: Buyers complete these deals with their own funds and don’t use a mortgage. Sellers typically require a POF during these transactions to confirm the purchaser has the full home price available.

— Competitive bidding scenarios: In a crowded market, sellers prefer buyers who can prove they have the funds to complete the purchase. As they typically have multiple offers to choose from, sellers can skip over buyers without a POF.

— Large down payments: If you’re putting down a significant amount of money, sellers and lenders may request a POF to make sure you can cover a larger than average payment.

— Commercial investment deals: Sellers might require a POF during commercial property transactions. These deals carry more financial risk, and sellers may want a guarantee buyers can cover the purchase price and manage maintenance costs.

— Mortgage applications: Lenders often need proof of a borrower’s ability to cover down payment and closing costs. Generally, providers accept POFs or bank statements for this purpose.

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Types of funds that qualify as proof of funds

While various types of funds qualify for a POF, checking and savings accounts are the most common. These prove that the buyer has the cash ready in their bank, which is why bank statements are a popular substitute for an official verification letter.

Other assets can work, including certificates of deposit and money market accounts, due to their stability. Stocks and bonds are volatile, so they aren’t generally accepted, but lenders may make an exception if you can quickly convert them to cash.

What matters most is that the money is usable. The precise type of account is less important than knowing the balance is real and ready when needed. Ask your bank or chosen financial institution to learn what they accept for a POF.

What information is included in a proof of funds?

A letter from a bank for proof of funds usually follows a basic format, but the exact look can vary depending on the institution. Most of the time, you’ll see:

— The financial institution’s information, including name, address, and contact details.

— The account holder’s information, such as your full name and address.

— Account details, like the type of account and its current balance.

— The date the document was prepared, often called a Date of Issuance.

— An official signature and seal to confirm an authorized professional prepared the document.

These details show that the document is real and that the money is accessible. While the fundamentals are consistent, some banks may add extra information, like a redacted account number or attached bank statements from the past 2–3 months.

How can you get a proof of funds letter?

Buyers can get ahold of these letters directly from their bank. Here’s how.

1. Move your money into one bank account

Many buyers find it helpful to consolidate their money into a single account before requesting the document. While a verification of funds letter can list multiple sources, pooling your cash makes it quick and easy to review.

2. Request the POF letter from your bank

Reach out to your bank and request a POF via phone, online portal, or in-person visit. It’s a standard practice, and the institution will walk you through the process. You’ll typically need to fill out a form, providing details like your full name, account number, and the amount of funds you need to prove.

3. Keep your POF safe

Once you have the letter, keep it secure and only share it with trusted parties involved in your real estate transaction. Many buyers choose to provide it to their real estate lender quickly and directly.

Keep in mind that POFs are on a specific timeline, and most expire within 30–60 days. It’s best to get your letter as close to the deal as possible, and contact your bank for an updated version if your home search takes longer than expected.

Confirm your buying power and make a persuasive offer with Better

POF letters are a smart choice, helping you move through your home buying journey quickly and smoothly. They let you show sellers you’re serious and can confidently pay expenses, sign the paperwork, and close on the property without delay. Better makes this process even easier. Get pre-approved within minutes and track your progress on our simple digital platform.

With Better, you can find a loan that suits your goals faster. Discover an agent, compare mortgage rates, and close on your dream home faster. Our online dashboard provides 24/7 support and a comprehensive knowledge base so you’ll have help every step of the way.

Enjoy great rates and a simple process with Better.

...in as little as 3 minutes – no credit impact

FAQ

What’s a proof of funds letter from a bank?

A POF letter is an official document that proves a buyer has a certain amount of funds. They’re typically used in real estate and business transactions to give the seller assurance that the purchaser has sufficient cash to cover expenses.

Why do banks require proof of funds for loan approval?

Banks prefer to see a POF letter to verify that a borrower has the money to cover deal expenses, such as closing costs and down payment. This demonstrates a buyer’s stability and commitment to the transaction, increasing a bank’s confidence and reducing their total risk.