Why Sellers Demand Proof of Funds From a Buyer
When you set out to make a purchase on a real estate property you will undoubtedly be asked to provide proof that you have the funds. Do not get angry with this. It is a normal part of the transaction. Every real estate investment must do this. So, don’t go thinking about your next home improvement project for the new property just yet. Exactly what constitutes adequate proof of funds? We will answer that question right here in this article. We hope you will find this information to be helpful
One important detail that your proof of funds ought to have is that the name of the financial institution that is on your offer matches that of the name on your bank statement. At first this may seem trivial; however, put yourself in the shoes of the seller. From their prospective, it could be a red flag if these names do not match. After all, if this is true, how does he know you are not scam artist? A way you can avoid this becoming an issue is to personally check your documents before you submit them. Make sure the name of your bank is exactly the same on all of them. Additionally you can make sure their address and telephone number is the same on all documents. The seller could take any inconsistency in the information on your documents as a sign of possible fraud.
Proof of Funds is Another Way of Saying Show Me the Your Income
Another extremely important point is to understand the difference between proof of funds and pre-approval. When you have the proof of funds statement; that is merely a document of your available funds provided to you by a third party. But pre-approval is a statement written up by your lender that establishes your qualification to borrow enough money from them to pay for your purchase. Out of the two of these documents; the pre-approval statement is the one you should be the most interested in. This is far more valuable to you in your purchase of property.
There are a few separate proofs of funds documents that will be sufficient to a lender; those are your banking statement (either the paper version or the online version) and an open line of credit in the equity form. You will also need to have a copy of the account balance in your money market fund and a financial statement that is certified. For your safety black out your account numbers and social security number on any documents you hand over to a third party. You never know who else might see this sensitive information. It is better to be safe than sorry.
It will be to your advantage if you know what each of the required documents will look like before it is time to submit them. A little bit of knowledge will go a long ways. One thing you can do is having your real estate attorney furnish you with some samples of these documents. If necessary he can also explain each one to you. That way you will know what to expect when you need to submit them. Your attorney can also review your filled out documentation to ensure everything is in order. Most likely he will be happy to do these things for you.
Evidence of Proof of Funds
If a buyer stuffs the mattress with cash, it may be very difficult to prove the buyer has a mattress full of cash. Depositing that cash into the bank might be a problem, too. Federal law requires banks to report cash deposits over $10,000 to the government. Some people who keep large sums of money under the mattress aren’t necessarily the type who want that money reported to the government.
Whether the verification of funds is to prove the buyer has a down payment or all of the cash necessary to avoid getting a mortgage, the process is basically the same. The buyer will need to produce a document. The document can sometimes be verified by a loan officer, but more often than not, the seller and the seller’s agent will want to see the actual document. Here are a few sample types of documentation:
- Original bank statement
- Online banking statement
- Open equity line of credit
- Copy of money market account balance
- Certified financial statement
Other things you may have to think about is home insurance coverage that you may want to get in the future