When you are looking for a home in NYC, it helps to be prepared. Fail to move fast enough, and you could lose out to another buyer that is organized and has everything submitted. One crucial step every buyer should include with their offer is what’s called a proof of funds letter. If you are a first-time buyer, here is what you need to know about this document and why it’s so important.
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What is a Proof of Funds letter?What is a Proof of Funds letter?
Proof of funds letter is a document that certifies that a buyer has enough funds to cover the transaction. Sellers are very unlikely to take an offer thoughtfully if not included in the offer. Otherwise, how can they know that the buyer can close on the purchase?
Even if you’re receiving financing for the purchase, expected you to provide one. After all, there’s the matter of the, down payment (usually 20% of the purchase price); closing costs (an additional 3-4% of the purchase price).
What about my pre-approval letter, doesn’t that count?What about my pre-approval letter, doesn’t that count?
Actually, no. A pre-approval letter is only a lender’s commitment to providing the buyer with a home loan. These are two separate documents and should not be confused with one another. The proof of funds letter will still be needed to show that you have the funds to close the sale and where you’re holding the funds.
What counts as proof of funds?What counts as proof of funds?
Most buyers get their proof of funds letters from their financial institutions where the money kept. Typically from a bank, but can also be an open line of credit or money market account where funds can be withdrawn quickly. It usually comes on an official document and is signed by a senior representative or officer of the bank.
It does not have to disclose the exact amount the buyer has in the bank. All that is needed is for it to reveal that the funds are more than the purchase price or deposit/closing costs, including post-closing liquidity when financing.
Proof of funds letter can also be a simple bank statement or investment account statement. If you go this route, know that it’s perfectly acceptable to ink out the account numbers for your privacy.
Must I include anything else with the letter?Must I include anything else with the letter?
That depends, are you buying a co-op or condo? If it’s a condo purchase, then the listing agent may be okay with just the offer price and proof of funds for an all-cash offer. But if it’s a co-op purchase, then you’ll still be expected to provide a completed REBNY Statement and reference letters, even if you’re making an all-cash offer.
The reason being that co-ops have stringent financial requirements and want to see that you have sufficient liquid assets post-closing and income. The required amount will vary from one co-op to another, so have your buyer’s agent confirm how much is needed before you make an offer.
Regardless, if you’re serious about closing, you should still include a REBNY statement. Along with your attorney’s contact information and a home buyer offer letter.
Sample Proof of Funds letterSample Proof of Funds letter
Most banks have their proof of funds templates on file; and filled as needed. They will vary in the details given but at a minimum will include the following:[Date] [Return Address]
To Whom It May Concern,
We confirm, that our client _____ [Name of Company/Individual] ______ has available a sum in excess of __________ as of this date with _____ [Name of Financial institution] ______. Should you require verification of the funds mentioned above, please contact us at your convenience.
Yours truly,[Authorized Officer]
Contact Info: __________