Documentation is the name of the game when it comes to buying a house. The only way to show lenders you can afford both a down payment and ongoing housing costs is through financial records, credit reports, pay stubs and other documents. Truthfully, as a homebuyer, your role in the mortgage process is largely limited to submitting those materials and then sitting back and waiting for your closing date.
But lenders aren’t the only ones that might want to see some paperwork. Before accepting an offer, sellers could require a proof of funds letter — commonly referred to as a POF letter — to verify your finances. Without one, your dreams of homeownership could go up in smoke.
Given those high stakes, it’s important to plan ahead and have a POF letter ready in hand when you put in an offer on a house. Let’s take a look at what a proof of funds letter covers and how you can go about getting one.
What is a POF letter?
Sellers may entertain a lot of offers, especially in hot real estate markets. With multiple options to choose from, sellers can afford to be pretty picky. As a prospective homebuyer, you may need to sweeten your offer by showing that you mean business.
There are a lot of different ways to demonstrate your commitment to a seller: upping your earnest money, nixing certain contingencies or even putting forward an all-cash offer. Not all of those options are advisable, however (it’s almost never a good idea to remove contingencies that protect buyers). An easier way to stand out from the competition is to have a proof of funds letter written up for you.
What does POF mean?
A proof of funds letter is a document that verifies how much money you have available in your financial accounts. It shows sellers that you have enough funds to cover both the down payment and the closing costs.
These documents also verify that you have access to the funds in question and are legally authorized to wire that money for the purpose of a home purchase. POF letters are typically provided by banks that manage your checking or savings accounts, but you may also request one for investment accounts and other assets.
With this piece of paper in hand, you can show the seller that you have enough funds to at least pay for the down payment and other up-front costs. Knowing that, the seller won’t have to worry so much about your ability to qualify for a mortgage. Think about it from the seller's point of view: if your financing falls through, they will need to put the property back on the market and start the whole process over again.
Sellers want a sure thing. If you can show them you can afford to buy the property, that alone could put you ahead of other prospective buyers who have nothing more than a preapproval letter to show.
When do you need a POF letter?
It never hurts to have verifiable proof of income from your bank. After all, you never know when a seller may want to see a report of available funds. That being said, there are particular scenarios where a POF letter will be especially handy:
- Buying in competitive housing markets
- Purchasing a short sale
- Back-to-back or double closing on a property
- Buying an investment property
- Paying for real estate in cash
In each of these situations, sellers may not agree to a deal — even conditionally — without some confirmation of your finances beforehand. If you were paying the entire sale price as a lump sum, for instance, the seller would almost certainly insist on seeing proof of funds for a cash offer first.
What should a proof of funds real estate letter include?
POF letters are not necessarily regulated, but they are expected to include some basic details to have any validity. If you’re getting a proof of funds letter from a bank, check that it at least contains these elements:
POF letter essentials
- Current date
- The name of your bank or financial institution
- The address of your bank or financial institution
- Contact info for your bank or financial institution
- Balance of available funds in your account (the account holder must be the same person making the offer on the house)
- Authorized signature
That’s it, really. Your bank can provide more context if it chooses, but as long as your verification of funds letter includes the above information, that should be enough to satisfy a seller.
How long is a proof of funds letter good for?
Proof of cash or funds letters don’t have a hard expiration date, but they don’t last forever. Their entire purpose is to verify how much money you have right now. A year-old POF letter from your bank may not be sufficient in the eyes of the seller because your financial situation could have easily changed in the ensuing months.
With that in mind, you should try to keep any documentation from your bank as up to date as possible. The more recent your financial records are, the more useful they’ll be. Under a month is a good general rule to stick to with POF letters.
How to get a proof of funds letter
Getting a proof of funds letter may seem like an annoying extra step to take when buying a house, but it’s actually pretty easy. All you need to do is reach out to your bank, credit union or financial institution and request that they send you a free proof of funds letter. Banks don’t charge for this service, so don’t worry about adding this to your list of preliminary homebuying costs. That list’s already long enough with home inspections, appraisals and earnest money to budget for.
It’s best to contact your bank by phone so you can get the wheels turning as quickly as possible. While the turnaround time on a personal proof of funds letter can be as short as 24 hours, it may take a few weeks to get your hands on a copy. To avoid any unnecessary delays, you should add a POF letter to your homebuying checklist right alongside getting a preapproval letter. Speaking of which …
POF letter vs. preapproval letter vs. proof of deposit
With all the different financial documents you’ll round up during the homebuying and mortgage processes, it’s easy to forget why you needed them in the first place. But rest assured, every single record you’re asked to present is important — and that includes a POF letter, preapproval letter and proof of deposit.
Proof of funds letter | Preapproval letter | Proof of deposit |
Requested by seller | Requested by seller | Requested by lender |
Verifies available funds for down payment, earnest money and closing costs | Verifies conditional financing approval | Verifies funds for down payment |
Provided by bank | Provided by lender | Provided by bank |
What does a proof of funds letter look like?
Although you won’t be writing the POF letter yourself, it’s good to know what the document should look like in case it’s missing any key info. Take a look through this proof of funds letter sample to better understand what details are absolutely necessary to include:
Proof of funds letter template
Letterhead (the proof of funds letter should be written on your bank’s official stationary)
Date
Your bank’s name and address
Greeting
Paragraph #1 — This should verify that you have an account in good standing and possibly note when you originally opened your account).
Paragraph #2 — This section should list your total amount of available funds, whether you only have one or multiple accounts with the bank.
Paragraph #3 — If applicable, your bank should list any additional documents, like copies of your bank statements, that are attached to the POF letter.
Closing
The bank agent’s signature, name and title
In conclusion
A proof of funds letter could be the difference between an accepted offer or losing out on your dream house to a competing bid. Because POF letters verify that you have enough money in your account to cover the down payment, earnest money and closing costs, sellers often ask to see them before agreeing to preliminary terms. In hot real estate markets — and the post-COVID housing market has been red-hot — sellers can afford to be selective about their vetting standards.
Thankfully, getting your hands on a certified proof of funds letter is relatively easy. Your bank should have no trouble sending over an official report of available funds in your checking or savings account. But you’ll want to get a jump on that early on in your homebuying journey. Once you find the right house, the last thing you want is to sit around and wait for that POF letter to arrive.
Good planning is the hallmark of a stress-free home purchase. The more up-front research and legwork you can do, the better prepared you’ll be to tackle anything that may come up as you search for the perfect home.
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