What is a Proof of Funds Letter and Why is it Needed?

What is a Proof of Funds Letter and Why is it Needed?

Proof of Funds, or simply a POF, is an official document or a statement issued by a financial institution, usually a bank.
A Proof of Funds letter basically shows that a party is willing to carry out a financial transaction, and has the means to go through with it.
In other words, it has the funds needed to close the deal.
The bank of the account holder usually provides a POF or the account holder may use his personal bank statement.
It is sometimes in the form of an official letter from the bank and would usually cover a specific transaction. This should be enough to satisfy the selling party, in that it assures them that there is ready cash available in the bank account. It is instantly available, and above all, the money is legitimate. A proof of funds letter is also used during the process of applying for a line of credit or mortgage. It is also required when one party is trying to engage another party for doing business or acquiring assets. A POF should ideally, and generally is, based on a cash account balance.
However, when a prospective purchaser lacks credit worthiness, he can opt for a joint venture with another party that has cash available.
This allows the first party to acquire a debt-based asset.
Of course, the second party or the cash contributor charges a fee for this service.
This cash based account also serves to enhance the perceived credit worthiness of the purchaser.
With the enhanced credit worthiness perception is because of the Proof of Funds letter, the original seller or third party feels more secure doing business with the purchaser knowing that he has the financial capability to carry out the transaction.
Unlike a Bank Statement, a POF letter does not typically show the opening or the closing balance of the account.
There is no history of transactions either.
It also does not show the outstanding loans associated with the account, or the credit cards pertaining to it.
A POF letter only shows that there are legitimate funds available in an account, which would be enough to complete a specific financial transaction.
Sometimes a so-called “Instant Proof of Funds Letter” is required mostly when one is planning to carry out a real estate transaction involving REOs (Real Estate Owned assets by bank).
This is a property that has been previously foreclosed by a lender and has become available on the market.
The bank and current owner may require a POF letter as of the date of the contract submission.
When a prospective buyer is making a purchase offer for such a real estate property, he may be required to submit a pre-qualification letter, which shows that he does have the cash required for closing the deal.
Here, the prospective purchase may use a Free Proof of Funds Letter, which is offered by a few companies.
This POF Letter allows for the best transactional funding of the transaction.
The ultimate goal of an investor wholesaler , who has bought a REO property, is to sell it to another buyer after as quickly as possible.
This is called a “wholesale flip” deal and the best wholesale flip deal is one that is completed in a single day.
In order to carry out the best transactional funding for a wholesale flip deal, an investor should get a free proof of funds letter.
There are many organizations and entities that are aware of this need of the investors are ready to provide virtually instant Proof of Funds letters.
This not only fulfills the needs of REO investors, but also caters to just about any kind of transactional funding needs.