Let’s face it: purchasing a home can be a lot of work. Finding the right home is only the beginning. Once you’ve accomplished that daunting task, you’ll be faced with a slew of requirements to meet prior to securing your mortgage. Lenders must do their due diligence to ensure that you are a reputable borrower, which means their underwriters must go through the process of reviewing your bank statements, pay stubs, tax returns, credit reports, and other financials.
You might say, “But wait, I’ve already been pre-approved!” Yes, a obtaining a pre-approval from a bank is a step in the right direction. However, it is only a statement that based on preliminary documentation; the bank tentatively predicts that you should be approved for a mortgage. The most discerning sellers often request “proof of funds” (POF) from potential buyers prior to accepting an offer. They do this because they want to avoid wasting the time and effort of entering into a contract with a buyer who is not truly financially equipped to purchase their home.
How to obtain POF
If your seller requests POF documentation, you will need to contact your bank right away and will likely be asked to provide additional evidence that you have the necessary down payment money and closing costs to complete the transaction. Once the bank reviews this documentation, they will issue a temporary POF letter for your seller confirming your eligibility. Once the seller is assured that the transaction is less likely to fall through, they may be inclined to accept your offer. It is possible that you will have to renew your POF prior to your closing date, as it does come with an expiration date.
The importance of POF for cash buyers
Cash buyers are frequently viewed as preferable to those who must obtain a mortgage in order to purchase a home; however, that doesn’t mean they are immune from requests for POF. In fact, a POF becomes even more important in all-cash deals because the buyer does not have a mortgage pre-approval. Therefore, the seller will want a guarantee that the money is readily available to be handed over at closing. Sellers may be dissuaded from accepting offers from cash buyers who first have to liquidate or obtain the cash by borrowing it, selling stocks or other funds, refinancing an existing property, withdrawing the funds from a retirement account, or waiting for a monetary settlement to come through. Due to the likelihood that these funds will not be available in time for closing, you may be considered too risky.
If you encounter a seller who requests POF, do not be discouraged. While it is an additional obstacle on the path to owning the home you desire, it is one that you should be able to overcome without too much difficulty.
If you have any further questions about POF requests, contact one of our home loan experts today by calling (516) 408-7300.