The real estate sector is not an easy place to do business, and this applies to every country in the world. Because it’s so competitive, time is an important factor when transacting with potential investors, whether you’re buying or selling.
However, it’s not all bad because there are few things that can make the experience better, faster, and easier. One such thing is a proof of funds letter. This article explains what explains what this letter is and how important it is in the real estate market.
Proof of Funds Letter: What It Is
This is a letter that acts as a written document from a bank or lending institution that says up front that you are a viable participant in a real estate transaction. It tells the seller you are not stringing them along with something you will simply have to back out of due to unreasonable conditions.
POF is tangible evidence that you have, or have access to, the money you’ll need to pay for your wholesale price or for paying all cash transactions.In a transaction, the seller and their agent prefer to deal with a buyer that is prepared to close the deal.
A POF letter tells them buying your home is within this buyer’s realm of possibilities and that this is a buyer who can and wants to move forward and isn’t going back and forth on an agreement. To understand how this works, check out this resource: https://www.infosysbpm.com/.
Why a Proof of Funds Letter Is Important
Having a POF letter can be your foot up on the competition. Here is why it is so important.
Increases Credibility: If there are multiple bidders on your deal, you provide a sense of relief to the seller when they see that you are both a potential and capable buyer. Your offer becomes more credible, especially in a hyper-competitive real estate market where all cash offers reign supreme.
Speeds Up the Process: By showing this letter, you may help speed up the closing process. This allows sellers not to wait around for your financing proceeding to take place or worry that something may fall through along the way. Using a hard money loan to buy the property can ease worry and is most likely already completed which will help speed along the closing process as well.
Helps in Negotiation: A Proof of Funds letter will often also come with a buyer having the ability to negotiate with sellers on a purchase price. When making offers, the seller may be more willing to work with you on your purchasing agreement in your real estate deal.
Shows Financial Stability: It is more than just proof that you have the funds for the purchase. It also shows the seller that you have the financial means needed to close. If you’re leveraging a hard money loan, for example, the lender will oftentimes provide proof showing you have the money to close the deal.
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Details of a Proof of Funds Letter
There are a few main components that you can expect to see in a proof of funds letter to make sure that it’s legitimate. While the exact components may differ, here’s what you can expect to see before using it:
Your Name and Contact Information: This is a confirmation that you’re the person that is requesting to be funded by their office and for this specific property deal.
Bank or Lender’s Information: This will include the hard money lender (or bank)’s information so the recipient can contact them to verify they do have the necessary funds. If you’re working with a hard money lender, this section may include the private lender or hard money company’s information that you’re working with.
Account Balance or Loan Amount: This is the confirmation of the available amount you have in your account or available in your hard money loan. This component is the most important, as it shows investors or partners that you have the liquid assets to close on the property.
Verification of Funds: This shows that the above balance is available for your use and these funds aren’t tied up in contributions or other investments.
Property Information: In some cases, more properties or more details will be added on a case-by-case basis with the company that writes the proof of funds letter for you.
Date of Letter: Since the bank can change the available balance in your account, the letter will include an expiration date or time frame to be sure that the information is up-to-date.
A Proof of Funds Letter Help and Hard Money Loans
Because you can close on a property or house much more quickly than a traditional buyer, a proof of funds letter from your lender can show you admit to getting this property under contract. How do you think this can give you an advantage over other investors who may also be interested in it? The letter can be the game-changer you need to close real estate investment deals faster.
This official document demonstrates to sellers and their agents that you are a serious buyer. It shows you’re prepared to follow through with purchases using cash or hard money loans, whichever is readily available to expedite action. By getting this letter upfront, you will simplify the purchase process and put yourself in a good position to negotiate with the confidence that you can close quickly and without complications.
Final Thoughts
By getting this documentation early in the process, you can speed up the transaction timeline by making negotiations easier and guaranteeing you have a path to an expedited transaction. Once you’re ready to become a real estate investor and are looking for a reliable source for your financing, whether through traditional lenders or using hard money loans, you can always find the funding source you need to acquire your first property.