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PROOF OF FUNDS LETTERS
Planning to buy a home and making your payment using cash? Then you may need to learn about a proof of funds letter. When you decide to pay for a purchase as big as a house, you will be asked to show a such evidence and one way to do that is to produce a proof of funds letter or obtain a letter from the bank. But what is a proof of funds letter? Basically, it’s a document which would serve as proof that you have enough funds to make the payment in cash.
Being able to produce concrete evidence of funding is essential as it can be the main factor which will determine whether you will be able to purchase the home you have your heart set upon. It would be a good idea to speak to your agent early about your payment plans. After that, you can ask your agent to guide you in acquiring this document. That would give the chance to give the seller the proof they need when they need it so they would most likely accept your offer.
There are a lot of free proof of funds letters online and if you are a beginner at the whole concept, you can just type it into a search engine and look at the different kinds of samples. You would need to have this letter to be able to successfully make a cash offer on a house. Typically, real estate agents won’t accept your offer unless you have actual evidence that you would be able to pay for the house you are placing an offer on. It basically serves the same purpose as a pre approval letter which would signify that you’d be able to keep your offer and complete your purchase.
Proof of Funds Letters
Proof of funds is generally used if you would like to buy a home with cash. Once you have this document and the seller knows you have the funds, you will be able to start negotiations on the final selling price of the house. This is only needed in the case of cash sales because of the nature of the sale. This article will help you learn all about the letters and even how to write one for yourself.
Types of Proof of Funds Letters
These kinds of letters are given by a person who is making a request from a bank to release his/her proof of funds, usually for the purpose of buying a house using cash. In such cases, a person would need evidence that he/she has enough funding in his/her account to be able to make a purchase. Usually, these kinds of letters are requested by the owner of the account to be given to a third party.
To be able to obtain this kind of letter from your bank, you’d have to request for it. The format for is different from a bank statement as it serves a different purpose. When you are looking into what is a proof of funds letter, you would learn that there are different types which are used for different purposes and have slightly different formats.
Let’s take a look at the different types of letters, which you may find useful should you need to make one for yourself.
Bank Comfort Letter
These types of letters can be referred to differently depending on their financial purpose. A Comfort Letter can be given by an accounting firm or by a CPA which would verify that an organization has enough finances or funding. This is typically used when a public offering is made initially.
When it comes to proof of funds letters, a Bank Comfort Letter is created to serve as a written documentation for a buyer, which is to be given to a seller as proof that the buyer is willing and capable of making the payment. This is usually asked for when a seller doesn’t want to give a financial guarantee against a specific outcome such as security performance.
Bank Readiness Letter
This type is commonly used for international trading. When international export or import financing is involved, there would usually come a time when a buyer or a seller would be asked for a bank letter of readiness.
This type of letter can be issued bank to bank. The purpose of this letter is to give confirmation to the other bank that they are well equipped and are ready to continue with the transaction. This type of letter is an essential element in ensuring that a transaction is completed properly.
Blocked Funds Letter
This type of letter is most commonly used to serve as proof that the funds in a specific account are reserved or “blocked” for a specific transaction. These types of letters are customarily used to bank debenture buy or sell deals and other high-end financial transactions.
Once this letter is issued, a specific amount of funds in an account must not be used or depleted and should stay in the account until they need to be used for the agreed upon transaction. Blocking funds can be done by giving a letter to your bank, making the request and the bank would then have to block the account on their system.
Verification of Deposit Letter
When real estate purchases are involved in transactions, whether big or small, a verification of deposit letter is usually issued to show that the bank is capable of funding. This kind of document is usually pre-formatted by different banks so that the all the details of the account holder is already included. The document can also contain any comments or instructions from the banker.
As you can see, there are different types of proof of funds letters, depending on the circumstances for which they will be used. So if you were trying to learn how to make them, make sure you know which type you need first. Knowing this would guide you in making your request to your bank or to whichever financial institution you will be making the request to. Now let’s take a look at some common mistakes made with these kinds of documents.
Common Mistakes for Proof of Funds Letters
These letters are essential for someone to be able to come up with the right document needed for different purposes. However, there are some mistakes, which are frequently made for these kinds of letters and it would be very helpful for you to know them so that you don’t end up making these common mistakes.
People Often Neglect Making Use of This Essential Document
When a seller is requesting for evidence that you have enough funding in your accounts and you would be able to pay the whole amount needed in cash as you had offered, the solution for that is very simple – obtain a letter of proof that you have enough funding so that you would have an actual document to supplement your claims. There are many free letters online and all you’d have to do is download one, make a request for it or better yet, learn how to make one yourself.
Stating that the Transaction will be Made in Cash Even When it is Actually a Financing Deal
You may get different kinds of advice which would say that making offers in cash would be beneficial for you. However, this move would most likely backfire especially when the offer would be accepted and actual proof of how much you have would be required. When you give a cash offer, the seller is expecting that all the money is yours and you would need a document or letter to serve as evidence of that fact.
Financing deals are different from cash offers and obtaining a evidence of your actual money won’t be very useful in cases like this. The document you’d receive would most likely show that you don’t actually have the whole amount in cash and you won’t be able to pay through this method.
Try to make smart decisions when you are planning to buy a house or make a similar big purchase and you’re planning to obtain a proof of funds or make a letter. Remember, you must have all the funds you need in your account; otherwise, you’d most likely benefit more from financial deals.
Helpful Tips in Building Your Funds for Your Proof of Funds Letter
To be able to write a good letter with great content, it would be very helpful for you to learn some tips in building your funds. If you would like to provide a seller with proof that you have enough funds, you should actually get the funds into your accounts first! If you are a member of a bank or lending institution, you can suggest these tips to your client. These tips can help guide you in building your funds before we move on to learning some steps in writing the actual letter.
- You can try borrowing the funds you would need from your family and friends to be able to raise the amount you need for your proof of funds. You can either put the money straight into your account or place it into a money market account to let it collect interest.
- You can use a provident fund (like your pension) in order to get a loan. Once you have your loan, you can place the funds into an account which would gather interest.
- If you are selling your house, use the sale of your house as part of your funds. If you’re planning to buy a better home anyway, sell your house as soon as you can and find an affordable place to rent while you are working out the details of your new home. This would allow you to add a huge amount to your proof of funds which would increase the chances of your offer being accepted by the seller of the home you’d like to own.
- Start a garage sale and sell anything which you don’t need. Take an inventory of all your things and sort out which items you want to keep and which items you would be willing to get rid of. Chances are, you will be able to find some items in your home which would fetch a good price. Once you’ve sold all these unnecessary items, deposit all the money you’ve gained into your account to add it into your funding.
- If you’re planning to buy a new home or make a big purchase in cash, start saving early. This would ensure that you would have enough funds in your account when the time comes that you would be needing a letter or document which would serve as a verification of how much you have.
These are tips which you can use not only to build your funds in case you would need evidence of them but these are very practical tips which you can use to be able to save more money and grow your finances. Now let’s move on to actually writing the letter which you can issue to any person who would request for it.
Write Your Own Proof of Funds Letter
Now that you know what is a proof of funds letter and you have enough information about it, we can move on to learning useful steps and tips in actually writing your own letter. Remember though that there are different templates and formats for these kinds of letters. You can also try searching for free proof of funds letters online and reword the templates if you don’t want to write the whole letter yourself. Keep in mind that this kind of letter from the bank needs to be official so these steps and tips will help you write one:
- Check the accounts of the person asking for the letter. Usually, you would be asked to issue this letter if you are working in a bank, a credit union or any other kind of financial institution as a senior personnel or a lending officer. So the first think you should do is confirm if the client has actually made the request and then check his/her accounts.
- Verify with your client which accounts would be included in the document you are to produce. Depending on the needs of your client, you may need to provide information about more than one account so verify this with your client.
- Establish the amount of money which would need to be included. Typically, a proof of funds letter is more than just a current bank statement which would give the balance of an account. Check with your client how much would be reflected in the record especially if the amount needed is actually less than what the client’s account contains. You should not include information that the client doesn’t want to share.
- Since the letter is an official document, you should print it out on formal stationary such as a letterhead, which contains the name and address of your institution. If your institution has different branches, indicate which branch is issuing the letter.
- Be sure to include the date when the letter has been issued as this is extremely important. The reason why this is important is that the date can be used as a reference for the validity of the document. If the one who has requested the letter happens to submit it weeks or months after you’ve issued it, the information in it might not be accurate anymore and the receiving party might not accept it anymore.
- The full name of the client (or account holder) should be included in your letter. Should there be any differences between the name of the account holder and the name of the person asking for the letter, speak to your client about it. You should not be issuing a letter to someone who doesn’t actually own the account.
- You should include any limitations in your letter. Sometimes the requesting party may ask for a letter for a specific purpose and you should include that in the letter. Also state that if the letter is used for any other purpose or if there are any other questions regarding the letter or the contents, they should contact you to clarify or give an explanation.
- Authorize and formalize your letter by affixing your signature or by asking authorized persons to affix their signature. In order for your letter to be accepted by the one who has requested for it or by the persons or institution the person who requested for it is giving it to, it must be signed by someone from your bank or financial institution. If you are writing the letter but you are not authorized to sign it, get the signature from the appropriate person or persons.
- Showing the letter to the authorized persons in your institution would also allow you to have your letter checked so that you are sure that it has been worded well and all the content in it is correct.
- Before signing the document or asking someone to sign it, you should first add the names of the signatories and their official titles. This is to ensure that the person who is signing has the authority based on their title. Of course, if the signatory isn’t someone “important,” he/she may not have the authority to sign the document and so the document may not be valid.
- Take a step further and ask your client if the letter he/she is requesting for needs to be notarized. Usually, it doesn’t have to be as long as the letter has been made well and has been signed by authorized personnel but in some cases, the seller or receiving party may require it.
- Once you’ve checked your letter, you’re sure it’s correct and you’ve had it signed, you can issue the letter to your client. Generally a proof of funds letter needs to be written and issued quickly because your client may be working with a transaction which is time sensitive. Find out when your client needs the letter and try to make sure that you would be able to issue the letter when your client needs it.
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