What is Proof of Funds?
Proof of funds (POF) is documentation that demonstrates a buyer has the financial capacity to complete a real estate purchase. It serves as evidence to the seller, their agent, or the title company that the buyer can actually close the deal. Proof of funds is particularly important in cash transactions where there's no lender doing the verification, and in competitive situations where sellers want confidence that the buyer won't fall through.
For wholesalers, proof of funds serves two purposes. First, sellers and their agents may request POF before accepting your offer. Second, when you're evaluating potential end buyers, verifying their proof of funds ensures they can actually close, preventing wasted time and deal cancellations.
What qualifies as proof of funds
- Bank statement: The most common form. A recent bank or brokerage statement showing sufficient liquid funds. Must be dated within 30 days.
- Official bank letter: A letter from the bank on letterhead confirming the account holder has sufficient funds available. Some banks charge a fee for this.
- Hard money pre-approval letter: A letter from a hard money lender confirming the investor is approved for a specific loan amount. This is common for fix-and-flip buyers.
- Line of credit documentation: Confirmation of an available home equity line of credit (HELOC) or business line of credit with sufficient balance.
- Self-directed IRA statement: For investors purchasing through a retirement account.
When proof of funds is required
POF is most commonly required in these situations:
- Cash offers: Since there's no lender involved, the seller has no other way to verify the buyer can close. A cash offer without POF is essentially meaningless.
- REO and bank-owned properties: Banks almost always require POF with the initial offer. No POF, no consideration.
- Competitive multiple-offer situations: Listing agents routinely request POF to filter out unqualified buyers.
- Double closings: The title company needs to know the funds are available for the A-to-B transaction. Transactional funding letters serve as POF for the closing.
Proof of funds for wholesalers
Wholesalers face a unique challenge: they may not personally have the funds to buy the property because their strategy is to assign the contract, not close on it themselves. Several approaches exist:
- Use your own funds: If you have cash available, provide a bank statement. You can show available funds even if you don't intend to use them for this particular purchase.
- Hard money pre-approval: Get pre-approved with a hard money lender. The pre-approval letter serves as POF even if you plan to assign.
- Transactional funding commitment: Some transactional funding companies provide POF letters for deals that have an identified end buyer.
- Partner or JV POF: If you're working with an investor partner, they can provide their proof of funds.
Verifying buyer proof of funds
When you're the wholesaler vetting end buyers, always request current POF before committing to an assignment or scheduling a closing. A buyer who can't produce POF in 24 hours is a red flag. The best buyers in your buyer list have their POF ready to go because they close deals regularly and understand the process.