Everything You Need to Know About Getting a Free Proof of Funds Letter
If you want to purchase a commercial or residential property, the seller may often require you to present a proof of funds letter before moving forward with the transaction. There are several types of proof of funds letters. In this article, we’ll review the basics of proof of funds letters and discuss how to get a free proof of funds letter from a lender— and why you might not always want to.
What is a Proof of Funds Letter?
A proof of funds letter demonstrates to a seller and their agent that you have the money to complete a real estate transaction. One type of proof of funds letter demonstrates that you have access to a loan to cover the purchase cost, while another demonstrates that you have liquid capital to make the down payment on a property. Sometimes, a seller will allow you to postpone presenting a lender proof of funds letter if you put down earnest money on the property.
In addition to traditional purchases, many real estate wholesalers use a proof of funds letter to place a property under contract before assigning that contract, for a fee, to another seller.
Can You Get a Free Proof of Funds from a Lender?
Sometimes. For example, some hard money lenders may be willing to offer a free proof of funds letter to almost anyone within 24 hours. Some of these lenders even offer a free letter template on their website. However, getting a lender proof of funds letter from a bank, CMBS, or agency lender may be more complex.
Certain lenders may be comfortable providing a proof of funds letter directly after pre-approving a loan and providing the prospective borrower a term sheet. Unless a lender charges an application fee prior to issuing a term sheet, this would count as a free proof of funds letter.
Despite this, many lenders may not feel comfortable issuing a proof of funds later until they have fully approved your loan. In some cases, you may need to pay the lender an upfront application fee, while in other cases you will only need to pay an origination fee at closing. Regardless, you will not get loan approval until various third-party reports have been completed and approved by your lender.
For residential properties, this typically includes a full appraisal and perhaps a building inspection. For commercial properties, the process is more complex and often also includes a Phase I Environmental Inspection. For construction loans, a construction cost estimate, as well as an architectural and engineering report, is also generally required.
A lender proof of funds letter will generally require:
The lender’s name, address, and contact information
The amount of funds that will be issued
The date that the funds can be issued by
The signature of the lender (and sometimes a notary)
A few hard money lenders that offer free, instant proof of funds letters include:
BestTransactionalFunding.com (Plan D Investments)
However, keep in mind that these lenders are known to offer proof of funds letters with little verification, so many sellers may be suspicious if you use letters from the above lenders. Therefore, we recommend to only use these proof of funds letters as a last resort. It is often better to pay to get a proof of funds letter from a quality lender rather than to get a free one from a lender with a less than ideal reputation.
Other hard money lenders may charge a small fee, often around $250, to examine a deal before providing a proof of funds letter.
Proof of funds letters from these lenders could (but may not always) appear as more legitimate than letters from lenders who hand them out for free.
In addition, here are two sources of free proof of funds letter templates that you may wish to present to your lender or bank, if they do not already have a template ready.
Getting a Proof of Funds Letter for Your Down Payment
In addition In some transactions, simply having a bank statement from your bank or printed online can qualify. Additionally, a certified financial statement or copy of a money market account balance will qualify. Other times, you will need a letter from your bank or financial institution that states the exact amount of accessible or liquid funds that you have available. This usually comes in the form of cash, but money market funds generally also count.
While they are liquid, stocks and bonds often do not count as liquid funds for a down payment, so you may need to sell these and cash out before attempting to purchase a property.
A proof of funds letter for down payment verification generally needs to include:
The name and address of your bank bank’s name and address
An official, dated bank statement including the total balance of funds in the account
The signature of a bank employee (and sometimes a notary)
This type of proof of funds letter will often include your bank account number and other personal information, so it’s important not to share this with anyone other than the prospective seller or their real estate agent.
Watch Out For Fake Proof of Funds Letters
If you’re struggling to put a property under contract, you may consider creating a fake proof of funds letter. You should avoid doing this at all costs, as it could constitute fraud, which could lead to criminal prosecution. You could also get sued by the seller if the deal does not close due to your lack of funds, as they may have refused other offers on the property due to being under contract with you.
For sellers, it’s also important to watch out for fake proof of funds letters. The easiest way to verify proof of funds is to simply call the lender to verify the letter. Be sure to look up the contact information of the lender online, as a crafty fraudster could put fake contact information in the proof of funds letter and answer the phone themselves.