What Is Proof of Funds When Buying a House?

When preparing to purchase a home, understanding proof of funds (POF) is a fundamental step. POF is documentation verifying an individual or entity possesses the financial resources necessary to complete a real estate transaction. This assures all parties that the buyer can fulfill their monetary obligations, setting a foundation for a smooth transaction.

Purpose and Timing of Proof of Funds

Proof of funds provides assurance to sellers and lenders throughout the home-buying journey. For cash buyers, it confirms the entire purchase price is readily available. For those securing a mortgage, it verifies sufficient liquid assets to cover the down payment, closing costs, and any required financial reserves. This financial transparency strengthens a buyer’s offer, especially in competitive markets.

Lenders rely on proof of funds during the mortgage underwriting process to verify assets, ensuring funds are legitimate and accessible. This verification confirms the buyer’s capacity to meet financial commitments and is crucial for mortgage approval.

Proof of funds is typically requested at several key stages. A seller’s real estate agent often requests it when a purchase offer is submitted, allowing the seller to evaluate the offer’s financial viability. Mortgage lenders require it during loan underwriting. Documentation may also be re-verified closer to the closing date to ensure funds remain available.

Acceptable Forms of Proof of Funds

Demonstrating proof of funds involves providing specific documents that verify the availability and accessibility of your financial resources. The most common and widely accepted forms are recent bank statements from checking and savings accounts. These statements must clearly display the account holder’s name, the date of the statement, and the current available balance, which should be sufficient to cover the required funds for the transaction. Typically, these statements should be current, often within the last 30 to 60 days.

Statements from brokerage or investment accounts also serve as acceptable proof of funds, provided the assets are liquid or can be easily converted to cash. Similar to bank statements, these documents need to show the account holder’s name, the statement date, and the accessible balance. While retirement account statements, such as 401(k) or IRA accounts, may sometimes be accepted, their eligibility depends on whether funds are accessible without significant penalties or if the buyer intends to borrow against them. Generally, funds must be liquid to qualify, meaning assets like mutual funds or life insurance policies that are not readily convertible to cash may not be accepted.

In situations where a portion of the funds is a gift from a family member, a gift letter is a necessary document. This letter must explicitly state:
The donor’s name
Their relationship to the buyer
The exact amount of the gift
A clear declaration that the funds are a gift and not a loan with an expectation of repayment.

Lenders often require the gift letter to be accompanied by documentation showing the source of the gifted funds, such as the donor’s bank statement showing the withdrawal. If the buyer is relying on proceeds from the sale of an existing home, a signed sales contract for the previous property, along with a closing disclosure from that sale, can serve as proof. However, it is important to note that lines of credit or pre-approval letters for loans are generally not considered proof of funds for the actual purchase price or down payment, as they represent borrowed funds rather than liquid assets.

How to Prepare and Securely Submit Your Documentation

Once you have identified and gathered the necessary proof of funds documents, careful preparation is essential before submission. Begin by ensuring that all statements are the most recent available, typically dated within 30 to 60 days. This currency is important for verifying the up-to-date availability of funds.

It is also important to redact sensitive personal information from your documents before sharing them. You should obscure full account numbers, social security numbers, and other private details while leaving visible essential information such as the bank’s name, your name, the statement date, and the available balance. This redaction can be done manually with a black marker on printed copies or digitally using PDF editing software, which permanently removes the hidden data. If you are utilizing funds from multiple accounts, it is advisable to consolidate these documents into a single, organized file, such as a PDF, for easier review by the recipient.

When it comes to submitting your prepared documentation, prioritize secure methods to protect your personal financial information. Avoid sending sensitive documents via unencrypted email, as this method carries security risks. Instead, use a secure online portal provided by your real estate agent or mortgage lender, which offers encrypted transfer and activity tracking. Hand delivery to your agent or lender is another secure option. Ensure you clarify with your real estate agent or lender who the appropriate recipient is for these documents, as it may vary depending on the stage of the transaction. After submission, it is a good practice to confirm receipt with the intended party to ensure your documents have been successfully received.