SS131: Proof of Funds in Real Estate

SS131: Proof of Funds in Real Estate

Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing Proof of Funds in Real Estate. When buying a property, the listing agent will normally require that the buyer provides proof of funds when submitting their offer. In this episode, Charles discusses what proof of funds mean, and what constitutes as proof of funds.

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Talking Points:

TALKING POINTS

  • When purchasing a property, it is common for the seller’s agent to require a proof of funds document, a POF, and/or a preapproval letter from a lender (if obtaining financing).
    • The preapproval letter is typically a letter from a bank, lender, or mortgage broker. The letter informs the seller that the potential buyer is able to afford the home and qualify for the mortgage. This is usually provided by a lender once they have reviewed the buyer’s financial situation. They will normally check the buyer’s; credit, pay stubs, tax returns; and other financial documents like bank statements.
      • The letter is simply a preapproval; there is no guarantee that the buyer will ultimately be approved for the mortgage. The pre-approval letter is only required if the purchaser is getting a mortgage. If they are paying cash, they will only provide a proof of funds document.
    • A proof of funds document shows the seller’s actual evidence that the buyer has enough liquid funds to truly purchase the property. A bank statement or money market statement (under the same individual’s name or entity that is on the purchase contract) is typically required and provided. A seller’s agent might also accept a brokerage statement (from a non-retirement account) as proof of funds.
      • If you are obtaining a mortgage to purchase a property, the exact amount the buyer needs to show can vary. If they are getting a conventional mortgage; they will most likely need to show enough for a 20% down payment, and closing costs of usually 2%-4%.
      • Not every seller’s agent will require proof of funds. The only time I have been asked for proof of funds when purchasing a residential property is when I was paying all cash. The pre-approval letter will normally suffice. If there are multiple offers on a property; I would provide both the preapproval letter and proof of funds document. This will make your offer stronger and might move your offer to the top of the stack (even if your offer isn’t the highest).
    • A side note on hard money lenders and cash offers.
      • A cash offer is only a cash offer if the buyer is using their own money to purchase the property. Home flippers that want to purchase a property with a hard money loan; will follow a similar path to obtaining the preapproval letter from a hard money lender. The buyer will now provide this letter to the sellers when they are submitting an offer.
    • Different Types of Proof of Funds Documents Would Include:
      • Bank or money market statements are the best (the money is there and can be transferred to the title company within hours) – I would block out the account number before I sent it to the seller’s agent.
      • An open equity line of credit
      • Brokerage statements (from non-retirement accounts)
      • A letter from a bank or certified financial planner (they will normally have a POF template that they will populate with your information and sign).
    • Proof of Funds Documents Do Not Include:
      • Retirement accounts
      • Life insurance policies
      • Any other qualified investment funds
    • Why Do You Need Proof of Funds?
      • Number 1 is when making an all-cash offer.
      • Number 2 would be when the seller’s agent requires it; if they have multiple offers or if the seller wants to verify financial stability before accepting an offer.
      • Or making an offer in a hot housing market – to add legitimacy to your offer, and make it stand out among others.
    • If you are planning on purchasing a home with a mortgage; the first step is speaking to a lender and getting pre-approved. I would then transfer the total estimated cost for closing on that property into one bank account. When putting in offers, you are providing just the pre-approval letter however; if it is a hot market and a popular property, you might want to submit a copy of that bank statement (blocked-out account number) alongside the offer, and the preapproval letter.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing proof of funds in real estate.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Charles:
When purchasing a property, it is very common for the seller’s agent to require a proof of funds document, also known as p o f and or a pre-approval letter from a lender.

Charles:
If obtaining financing, now the pre-approval letter is typically a letter from a bank lender or mortgage broker, and the letter informs the seller that the potential buyer is able to afford the home and qualify for the mortgage. This is usually provided by a lender. Once they have reviewed the buyer’s financial situation, they will normally check the buyer’ss credit pay stubs or tax returns and other financial documents like bank statements. The letter is simply a pre-approval. There is no guarantee that the buyer will ultimately be approved for the mortgage. The pre-approval letter is only required if the purchaser is getting a mortgage. If they’re paying cash, they’ll only provide a proof of funds document. A proof of funds document shows the seller’s actual evidence that the buyer has enough liquid funds to truly purchase the property. A bank statement or money market statement under the same individual’s name or entity that is on the purchase contract is typically required and provided.

Charles:
A seller’s agent might also accept a brokerage statement from a non-retirement account as proof of funds. If you’re obtaining a mortgage to purchase a property, the exact amount the buyer needs to show can vary. If they’re getting a conventional mortgage, they will most likely need to show enough for a 20% down payment and closing costs of usually two to 4%. Not every sailor’s agent will require proof of funds. The only time I’ve been asked for proof of funds when purchasing a residential property is when I was paying all cash. The pre-approval letter will normally suffice. If there are multiple offers on a property, I would provide both the pre-approval letter and the proof of funds document. This will make your offer stronger and might move your offer to the top of the stack even if your offer is in the highest. Now, a side note on hard money lenders and cash offers.

Charles:
So a cash offer is only a cash offer if the buyer is using their own money to purchase the property. Home Flippers that want to purchase a property with a hard money loan will follow a similar path to obtaining a pre-approval letter from a hard money lender. The buyer will now provide this letter to the sellers when they’re submitting an offer. Now, different types of proof of funds, documents could include bank or money. Market statements are the best. You know, the money is there and can be transferred to the title company within ours. I would block out the account number before I send it to the seller’s agent. An open equity line of credit, a brokerage statement from a non-retirement account a letter from a bank or certified financial planner, they will normally have a proof of funds template that they will populate with your information and sign.

Charles:
Proof of funds, documents do not include retirement accounts, life insurance policies, or any other qualified investment funds. And why do you need proof of funds? Well, number one is when making an all cash offer. Number two is a, when the seller’s agent requires it. If they have multiple offers or the seller wants to fi verify the financial stability before accepting an offer or making an offer in a ho housing market. And it adds legitimacy to your offer and make it stand out among the others. Now, if you’re planning on purchasing a home with a mortgage, the first step is speaking to a lender and getting pre-approved. I would then transfer the total estimated closing costs for that closing into one bank account. When putting in your offers, you’re providing just the pre-approval letter. However, if it is a really hot market where you are and it’s a very popular property, you might wanna submit a copy of the bank statement, blocked out account number of course, alongside the offer and the pre-approval letter. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments and potential show topics at globalinvestorspodcast.com. Look forward to two more episodes next week. See you then.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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